Correlation Between Ford and ZEL
Can any of the company-specific risk be diversified away by investing in both Ford and ZEL 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 ZEL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and ZEL, you can compare the effects of market volatilities on Ford and ZEL 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 ZEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and ZEL.
Diversification Opportunities for Ford and ZEL
Very weak diversification
The 3 months correlation between Ford and ZEL is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ZEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEL 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 ZEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZEL has no effect on the direction of Ford i.e., Ford and ZEL go up and down completely randomly.
Pair Corralation between Ford and ZEL
Taking into account the 90-day investment horizon Ford is expected to generate 23.53 times less return on investment than ZEL. But when comparing it to its historical volatility, Ford Motor is 3.04 times less risky than ZEL. It trades about 0.01 of its potential returns per unit of risk. ZEL is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3.15 in ZEL on September 2, 2024 and sell it today you would earn a total of 4.86 from holding ZEL or generate 154.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 60.48% |
| Values | Daily Returns |
Ford Motor vs. ZEL
Performance |
| Timeline |
| Ford Motor |
| ZEL |
Ford and ZEL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and ZEL
The main advantage of trading using opposite Ford and ZEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, ZEL 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 ZEL will offset losses from the drop in ZEL's long position.The idea behind Ford Motor and ZEL 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
Other Complementary Tools
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance |