Correlation Between Ford and Prime Oil

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

By analyzing existing cross correlation between Ford Motor and Prime Oil Chemical, you can compare the effects of market volatilities on Ford and Prime Oil 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 Prime Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Prime Oil.

Diversification Opportunities for Ford and Prime Oil

-0.36

Correlation Coefficient

Ford  Prime Oil

Very good diversification

The 3 months correlation between Ford and Prime is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical 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 Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Ford i.e., Ford and Prime Oil go up and down completely randomly.

Pair Corralation between Ford and Prime Oil

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Prime Oil. In addition to that, Ford is 5.03 times more volatile than Prime Oil Chemical. It trades about -0.01 of its total potential returns per unit of risk. Prime Oil Chemical is currently generating about -0.03 per unit of volatility. If you would invest  1,825  in Prime Oil Chemical on September 14, 2024 and sell it today you would lose (15.00) from holding Prime Oil Chemical or give up 0.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Ford Motor  vs.  Prime Oil Chemical

Ford Motor

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Prime Oil Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Oil Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Prime Oil is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and Prime Oil

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

The idea behind Ford Motor and Prime Oil Chemical 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 Transaction History module to view history of all your transactions and understand their impact on performance.