Correlation Between PACCAR and Ford
Can any of the company-specific risk be diversified away by investing in both PACCAR and Ford 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 PACCAR and Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and Ford Motor, you can compare the effects of market volatilities on PACCAR and Ford 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 PACCAR with a short position of Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Ford.
Diversification Opportunities for PACCAR and Ford
Very poor diversification
The 3 months correlation between PACCAR and Ford is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and PACCAR 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 PACCAR Inc are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of PACCAR i.e., PACCAR and Ford go up and down completely randomly.
Pair Corralation between PACCAR and Ford
Given the investment horizon of 90 days PACCAR Inc is expected to under-perform the Ford. But the stock apears to be less risky and, when comparing its historical volatility, PACCAR Inc is 2.31 times less risky than Ford. The stock trades about -0.18 of its potential returns per unit of risk. The Ford Motor is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 1,230 in Ford Motor on January 19, 2024 and sell it today you would lose (24.00) from holding Ford Motor or give up 1.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. Ford Motor
Performance |
| Timeline |
| PACCAR Inc |
| Ford Motor |
PACCAR and Ford Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and Ford
The main advantage of trading using opposite PACCAR and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.| PACCAR vs. Ideanomics | PACCAR vs. American Premium Water | PACCAR vs. Titan International | PACCAR vs. Deere Company |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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