Correlation Between Ford and Union Petrochemical
Can any of the company-specific risk be diversified away by investing in both Ford and Union Petrochemical at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ford and Union Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Union Petrochemical Public, you can compare the effects of market volatilities on Ford and Union Petrochemical and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ford with a short position of Union Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Union Petrochemical.
Diversification Opportunities for Ford and Union Petrochemical
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Union is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Union Petrochemical Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Petrochemical and Ford is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ford Motor are associated (or correlated) with Union Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Petrochemical has no effect on the direction of Ford i.e., Ford and Union Petrochemical go up and down completely randomly.
Pair Corralation between Ford and Union Petrochemical
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.34 times more return on investment than Union Petrochemical. However, Ford is 1.34 times more volatile than Union Petrochemical Public. It trades about 0.0 of its potential returns per unit of risk. Union Petrochemical Public is currently generating about -0.23 per unit of risk. If you would invest 1,122 in Ford Motor on August 29, 2024 and sell it today you would lose (12.00) from holding Ford Motor or give up 1.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Union Petrochemical Public
Performance |
| Timeline |
| Ford Motor |
| Union Petrochemical |
Ford and Union Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Union Petrochemical
The main advantage of trading using opposite Ford and Union Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Union Petrochemical can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Union Petrochemical will offset losses from the drop in Union Petrochemical's long position.The idea behind Ford Motor and Union Petrochemical Public pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Union Petrochemical vs. Vibhavadi Medical Center | Union Petrochemical vs. TWZ Public | Union Petrochemical vs. WHA Public | Union Petrochemical vs. Tata Steel Public |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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