Correlation Between Ford and BG Foods
Can any of the company-specific risk be diversified away by investing in both Ford and BG Foods 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 BG Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and BG Foods, you can compare the effects of market volatilities on Ford and BG Foods 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 BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BG Foods.
Diversification Opportunities for Ford and BG Foods
Very weak diversification
The 3 months correlation between Ford and BGS is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods 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 BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Ford i.e., Ford and BG Foods go up and down completely randomly.
Pair Corralation between Ford and BG Foods
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BG Foods. In addition to that, Ford is 1.39 times more volatile than BG Foods. It trades about -0.14 of its total potential returns per unit of risk. BG Foods is currently generating about -0.06 per unit of volatility. If you would invest 1,083 in BG Foods on January 20, 2024 and sell it today you would lose (25.00) from holding BG Foods or give up 2.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. BG Foods
Performance |
| Timeline |
| Ford Motor |
| BG Foods |
Ford and BG Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BG Foods
The main advantage of trading using opposite Ford and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BG Foods 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 BG Foods will offset losses from the drop in BG Foods' long position.The idea behind Ford Motor and BG Foods 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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