Can any of the company-specific risk be diversified away by investing in both Ford and Advantis Corp 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 Advantis Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Advantis Corp, you can compare the effects of market volatilities on Ford and Advantis Corp 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 Advantis Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Advantis Corp.
Diversification Opportunities for Ford and Advantis Corp
The 3 months correlation between Ford and Advantis is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Advantis Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantis Corp 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 Advantis Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantis Corp has no effect on the direction of Ford i.e., Ford and Advantis Corp go up and down completely randomly.
Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in November 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Over the last 90 days Advantis Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Advantis Corp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
The main advantage of trading using opposite Ford and Advantis Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Advantis Corp 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 Advantis Corp will offset losses from the drop in Advantis Corp's long position.
The idea behind Ford Motor and Advantis Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
Use alpha and beta coefficients to find investment opportunities after accounting for the risk
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