Correlation Between Ford and Aerodrome
Can any of the company-specific risk be diversified away by investing in both Ford and Aerodrome 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 Aerodrome into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Aerodrome Group, you can compare the effects of market volatilities on Ford and Aerodrome 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 Aerodrome. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Aerodrome.
Diversification Opportunities for Ford and Aerodrome
Very weak diversification
The 3 months correlation between Ford and Aerodrome is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Aerodrome Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerodrome Group 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 Aerodrome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerodrome Group has no effect on the direction of Ford i.e., Ford and Aerodrome go up and down completely randomly.
Pair Corralation between Ford and Aerodrome
Taking into account the 90-day investment horizon Ford is expected to generate 6.3 times less return on investment than Aerodrome. But when comparing it to its historical volatility, Ford Motor is 2.31 times less risky than Aerodrome. It trades about 0.09 of its potential returns per unit of risk. Aerodrome Group is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 7,390 in Aerodrome Group on January 26, 2024 and sell it today you would earn a total of 1,610 from holding Aerodrome Group or generate 21.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 76.19% |
| Values | Daily Returns |
Ford Motor vs. Aerodrome Group
Performance |
| Timeline |
| Ford Motor |
| Aerodrome Group |
Ford and Aerodrome Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Aerodrome
The main advantage of trading using opposite Ford and Aerodrome positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Aerodrome 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 Aerodrome will offset losses from the drop in Aerodrome's long position.The idea behind Ford Motor and Aerodrome Group 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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