Correlation Between Ford and Global Franchise
Can any of the company-specific risk be diversified away by investing in both Ford and Global Franchise 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 Global Franchise into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Global Franchise Portfolio, you can compare the effects of market volatilities on Ford and Global Franchise 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 Global Franchise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Global Franchise.
Diversification Opportunities for Ford and Global Franchise
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and Global is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Global Franchise Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Franchise Por 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 Global Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Franchise Por has no effect on the direction of Ford i.e., Ford and Global Franchise go up and down completely randomly.
Pair Corralation between Ford and Global Franchise
Taking into account the 90-day investment horizon Ford Motor is expected to generate 3.48 times more return on investment than Global Franchise. However, Ford is 3.48 times more volatile than Global Franchise Portfolio. It trades about 0.02 of its potential returns per unit of risk. Global Franchise Portfolio is currently generating about -0.15 per unit of risk. If you would invest 1,290 in Ford Motor on January 25, 2024 and sell it today you would earn a total of 5.00 from holding Ford Motor or generate 0.39% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Ford Motor vs. Global Franchise Portfolio
Performance |
Timeline |
Ford Motor |
Global Franchise Por |
Ford and Global Franchise Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ford and Global Franchise
The main advantage of trading using opposite Ford and Global Franchise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Global Franchise 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 Global Franchise will offset losses from the drop in Global Franchise's long position.The idea behind Ford Motor and Global Franchise Portfolio 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.Global Franchise vs. American Funds Capital | Global Franchise vs. American Funds Capital | Global Franchise vs. Capital World Growth | Global Franchise vs. Capital World Growth |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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