Correlation Between Ford and UNITIL
Can any of the company-specific risk be diversified away by investing in both Ford and UNITIL 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 UNITIL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and UNITIL, you can compare the effects of market volatilities on Ford and UNITIL 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 UNITIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and UNITIL.
Diversification Opportunities for Ford and UNITIL
Very weak diversification
The 3 months correlation between Ford and UNITIL is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and UNITIL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITIL 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 UNITIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITIL has no effect on the direction of Ford i.e., Ford and UNITIL go up and down completely randomly.
Pair Corralation between Ford and UNITIL
Taking into account the 90-day investment horizon Ford is expected to generate 4.76 times less return on investment than UNITIL. In addition to that, Ford is 1.57 times more volatile than UNITIL. It trades about 0.01 of its total potential returns per unit of risk. UNITIL is currently generating about 0.09 per unit of volatility. If you would invest 5,083 in UNITIL on August 28, 2024 and sell it today you would earn a total of 980.00 from holding UNITIL or generate 19.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. UNITIL
Performance |
| Timeline |
| Ford Motor |
| UNITIL |
Ford and UNITIL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and UNITIL
The main advantage of trading using opposite Ford and UNITIL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, UNITIL 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 UNITIL will offset losses from the drop in UNITIL's long position.The idea behind Ford Motor and UNITIL 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.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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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