Correlation Between Ford and Visa
Can any of the company-specific risk be diversified away by investing in both Ford and Visa 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 Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Visa Class A, you can compare the effects of market volatilities on Ford and Visa 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 Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Visa.
Diversification Opportunities for Ford and Visa
Very weak diversification
The 3 months correlation between Ford and Visa is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of Ford i.e., Ford and Visa go up and down completely randomly.
Pair Corralation between Ford and Visa
Taking into account the 90-day investment horizon Ford Motor is expected to generate 3.0 times more return on investment than Visa. However, Ford is 3.0 times more volatile than Visa Class A. It trades about -0.03 of its potential returns per unit of risk. Visa Class A is currently generating about -0.3 per unit of risk. If you would invest 1,230 in Ford Motor on January 19, 2024 and sell it today you would lose (26.00) from holding Ford Motor or give up 2.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Visa Class A
Performance |
| Timeline |
| Ford Motor |
| Visa Class A |
Ford and Visa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Visa
The main advantage of trading using opposite Ford and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Visa 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 Visa will offset losses from the drop in Visa's long position.The idea behind Ford Motor and Visa Class A 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.| Visa vs. American Express | Visa vs. Capital One Financial | Visa vs. Upstart HoldingsInc | Visa vs. Ally Financial |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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