Correlation Between Ford and WEMIX
Can any of the company-specific risk be diversified away by investing in both Ford and WEMIX 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 WEMIX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and WEMIX, you can compare the effects of market volatilities on Ford and WEMIX 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 WEMIX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and WEMIX.
Diversification Opportunities for Ford and WEMIX
Significant diversification
The 3 months correlation between Ford and WEMIX is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and WEMIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEMIX 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 WEMIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEMIX has no effect on the direction of Ford i.e., Ford and WEMIX go up and down completely randomly.
Pair Corralation between Ford and WEMIX
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the WEMIX. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.87 times less risky than WEMIX. The stock trades about 0.0 of its potential returns per unit of risk. The WEMIX is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 76.00 in WEMIX on August 24, 2024 and sell it today you would earn a total of 23.00 from holding WEMIX or generate 30.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. WEMIX
Performance |
| Timeline |
| Ford Motor |
| WEMIX |
Ford and WEMIX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and WEMIX
The main advantage of trading using opposite Ford and WEMIX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, WEMIX 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 WEMIX will offset losses from the drop in WEMIX's long position.The idea behind Ford Motor and WEMIX 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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