Correlation Between Ford and XWC
Can any of the company-specific risk be diversified away by investing in both Ford and XWC 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 XWC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and XWC, you can compare the effects of market volatilities on Ford and XWC 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 XWC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and XWC.
Diversification Opportunities for Ford and XWC
Very weak diversification
The 3 months correlation between Ford and XWC is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and XWC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XWC 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 XWC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XWC has no effect on the direction of Ford i.e., Ford and XWC go up and down completely randomly.
Pair Corralation between Ford and XWC
Taking into account the 90-day investment horizon Ford is expected to generate 13.42 times less return on investment than XWC. But when comparing it to its historical volatility, Ford Motor is 1.65 times less risky than XWC. It trades about 0.03 of its potential returns per unit of risk. XWC is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 2.01 in XWC on September 2, 2024 and sell it today you would earn a total of 1.37 from holding XWC or generate 68.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 96.97% |
| Values | Daily Returns |
Ford Motor vs. XWC
Performance |
| Timeline |
| Ford Motor |
| XWC |
Ford and XWC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and XWC
The main advantage of trading using opposite Ford and XWC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, XWC 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 XWC will offset losses from the drop in XWC's long position.The idea behind Ford Motor and XWC 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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