Correlation Between Ferrari NV and Standard

Can any of the company-specific risk be diversified away by investing in both Ferrari NV and Standard 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 Ferrari NV and Standard into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ferrari NV and Standard Motor Products, you can compare the effects of market volatilities on Ferrari NV and Standard 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 Ferrari NV with a short position of Standard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferrari NV and Standard.

Diversification Opportunities for Ferrari NV and Standard

-0.46

Correlation Coefficient

Ferrari NV  Standard

Very good diversification

The 3 months correlation between Ferrari and Standard is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Standard Motor Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Motor Products and Ferrari NV 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 Ferrari NV are associated (or correlated) with Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Motor Products has no effect on the direction of Ferrari NV i.e., Ferrari NV and Standard go up and down completely randomly.

Pair Corralation between Ferrari NV and Standard

Given the investment horizon of 90 days Ferrari NV is expected to under-perform the Standard. But the stock apears to be less risky and, when comparing its historical volatility, Ferrari NV is 1.89 times less risky than Standard. The stock trades about -0.09 of its potential returns per unit of risk. The Standard Motor Products is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,143  in Standard Motor Products on September 3, 2024 and sell it today you would earn a total of  145.00  from holding Standard Motor Products or generate 4.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ferrari NV  vs.  Standard Motor Products

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Standard Motor Products

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Motor Products are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Standard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ferrari NV and Standard

The main advantage of trading using opposite Ferrari NV and Standard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferrari NV position performs unexpectedly, Standard 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 Standard will offset losses from the drop in Standard's long position.

The idea behind Ferrari NV and Standard Motor Products 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.