Correlation Between Ford and Floor Decor
Can any of the company-specific risk be diversified away by investing in both Ford and Floor Decor 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 Floor Decor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Floor Decor Holdings, you can compare the effects of market volatilities on Ford and Floor Decor 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 Floor Decor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Floor Decor.
Diversification Opportunities for Ford and Floor Decor
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Floor is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings 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 Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of Ford i.e., Ford and Floor Decor go up and down completely randomly.
Pair Corralation between Ford and Floor Decor
Taking into account the 90-day investment horizon Ford is expected to generate 1.17 times less return on investment than Floor Decor. But when comparing it to its historical volatility, Ford Motor is 1.17 times less risky than Floor Decor. It trades about 0.12 of its potential returns per unit of risk. Floor Decor Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,755 in Floor Decor Holdings on January 25, 2024 and sell it today you would earn a total of 3,211 from holding Floor Decor Holdings or generate 41.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Floor Decor Holdings
Performance |
| Timeline |
| Ford Motor |
| Floor Decor Holdings |
Ford and Floor Decor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Floor Decor
The main advantage of trading using opposite Ford and Floor Decor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Floor Decor 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 Floor Decor will offset losses from the drop in Floor Decor's long position.The idea behind Ford Motor and Floor Decor Holdings 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.| Floor Decor vs. Arhaus Inc | Floor Decor vs. Live Ventures | Floor Decor vs. LL Flooring Holdings | Floor Decor vs. Haverty Furniture Companies |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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