Correlation Between Ford and USS Co
Can any of the company-specific risk be diversified away by investing in both Ford and USS Co 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 USS Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and USS Co Ltd, you can compare the effects of market volatilities on Ford and USS Co 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 USS Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and USS Co.
Diversification Opportunities for Ford and USS Co
Good diversification
The 3 months correlation between Ford and USS is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and USS Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USS Co 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 USS Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USS Co has no effect on the direction of Ford i.e., Ford and USS Co go up and down completely randomly.
Pair Corralation between Ford and USS Co
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the USS Co. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.92 times less risky than USS Co. The stock trades about -0.18 of its potential returns per unit of risk. The USS Co Ltd is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,708 in USS Co Ltd on September 12, 2024 and sell it today you would earn a total of 232.00 from holding USS Co Ltd or generate 13.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Ford Motor vs. USS Co Ltd
Performance |
| Timeline |
| Ford Motor |
| USS Co |
Ford and USS Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and USS Co
The main advantage of trading using opposite Ford and USS Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, USS Co 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 USS Co will offset losses from the drop in USS Co's long position.The idea behind Ford Motor and USS Co Ltd 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.| USS Co vs. Sonic Automotive | USS Co vs. Lithia Motors | USS Co vs. AutoNation | USS Co vs. Asbury Automotive Group |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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