Correlation Between Ford and Materials Portfolio

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Can any of the company-specific risk be diversified away by investing in both Ford and Materials Portfolio 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 Materials Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Materials Portfolio Fidelity, you can compare the effects of market volatilities on Ford and Materials Portfolio 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 Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Materials Portfolio.

Diversification Opportunities for Ford and Materials Portfolio

0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between Ford and Materials is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Ford i.e., Ford and Materials Portfolio go up and down completely randomly.

Pair Corralation between Ford and Materials Portfolio

Taking into account the 90-day investment horizon Ford is expected to generate 4.87 times less return on investment than Materials Portfolio. In addition to that, Ford is 2.34 times more volatile than Materials Portfolio Fidelity. It trades about 0.01 of its total potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about 0.11 per unit of volatility. If you would invest  9,234  in Materials Portfolio Fidelity on September 8, 2024 and sell it today you would earn a total of  546.00  from holding Materials Portfolio Fidelity or generate 5.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  Materials Portfolio Fidelity

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
Materials Portfolio 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ford and Materials Portfolio Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Materials Portfolio

The main advantage of trading using opposite Ford and Materials Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Materials Portfolio 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 Materials Portfolio will offset losses from the drop in Materials Portfolio's long position.
The idea behind Ford Motor and Materials Portfolio Fidelity 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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