Correlation Between Ford and Newpark Resources
Can any of the company-specific risk be diversified away by investing in both Ford and Newpark Resources 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 Newpark Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Newpark Resources, you can compare the effects of market volatilities on Ford and Newpark Resources 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 Newpark Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Newpark Resources.
Diversification Opportunities for Ford and Newpark Resources
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Newpark is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark 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 Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of Ford i.e., Ford and Newpark Resources go up and down completely randomly.
Pair Corralation between Ford and Newpark Resources
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.52 times more return on investment than Newpark Resources. However, Ford is 1.52 times more volatile than Newpark Resources. It trades about 0.01 of its potential returns per unit of risk. Newpark Resources is currently generating about -0.01 per unit of risk. If you would invest 1,290 in Ford Motor on January 24, 2024 and sell it today you would lose (2.00) from holding Ford Motor or give up 0.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Newpark Resources
Performance |
| Timeline |
| Ford Motor |
| Newpark Resources |
Ford and Newpark Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Newpark Resources
The main advantage of trading using opposite Ford and Newpark Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Newpark Resources 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 Newpark Resources will offset losses from the drop in Newpark Resources' long position.The idea behind Ford Motor and Newpark 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.| Newpark Resources vs. Expro Group Holdings | Newpark Resources vs. MRC Global | Newpark Resources vs. Now Inc |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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