Correlation Between Ford and Western Capital
Can any of the company-specific risk be diversified away by investing in both Ford and Western Capital 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 Western Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Western Capital Resources, you can compare the effects of market volatilities on Ford and Western Capital 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 Western Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Western Capital.
Diversification Opportunities for Ford and Western Capital
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Western is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Western Capital Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Capital Resources 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 Western Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Capital Resources has no effect on the direction of Ford i.e., Ford and Western Capital go up and down completely randomly.
Pair Corralation between Ford and Western Capital
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Western Capital. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.68 times less risky than Western Capital. The stock trades about 0.0 of its potential returns per unit of risk. The Western Capital Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 460.00 in Western Capital Resources on September 2, 2024 and sell it today you would earn a total of 468.00 from holding Western Capital Resources or generate 101.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Ford Motor vs. Western Capital Resources
Performance |
| Timeline |
| Ford Motor |
| Western Capital Resources |
Ford and Western Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Western Capital
The main advantage of trading using opposite Ford and Western Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Western Capital 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 Western Capital will offset losses from the drop in Western Capital's long position.The idea behind Ford Motor and Western Capital Resources 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.| Western Capital vs. Porsche Automobile Holding | Western Capital vs. Ferrari NV | Western Capital vs. Toyota Motor | Western Capital vs. General Motors |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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