Correlation Between Ford and UIE PLC
Can any of the company-specific risk be diversified away by investing in both Ford and UIE PLC 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 UIE PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and UIE PLC, you can compare the effects of market volatilities on Ford and UIE PLC 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 UIE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and UIE PLC.
Diversification Opportunities for Ford and UIE PLC
Modest diversification
The 3 months correlation between Ford and UIE is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and UIE PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UIE PLC 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 UIE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UIE PLC has no effect on the direction of Ford i.e., Ford and UIE PLC go up and down completely randomly.
Pair Corralation between Ford and UIE PLC
Taking into account the 90-day investment horizon Ford is expected to generate 7.31 times less return on investment than UIE PLC. In addition to that, Ford is 2.67 times more volatile than UIE PLC. It trades about 0.01 of its total potential returns per unit of risk. UIE PLC is currently generating about 0.19 per unit of volatility. If you would invest 21,400 in UIE PLC on January 24, 2024 and sell it today you would earn a total of 700.00 from holding UIE PLC or generate 3.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 90.0% |
| Values | Daily Returns |
Ford Motor vs. UIE PLC
Performance |
| Timeline |
| Ford Motor |
| UIE PLC |
Ford and UIE PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and UIE PLC
The main advantage of trading using opposite Ford and UIE PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, UIE PLC 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 UIE PLC will offset losses from the drop in UIE PLC's long position.The idea behind Ford Motor and UIE PLC 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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