Correlation Between Ford and Avanti Energy

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

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

Diversification Opportunities for Ford and Avanti Energy

0.47

Correlation Coefficient

Ford  Avanti Energy

Very weak diversification

The 3 months correlation between Ford and Avanti is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Avanti Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanti Energy 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 Avanti Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanti Energy has no effect on the direction of Ford i.e., Ford and Avanti Energy go up and down completely randomly.

Pair Corralation between Ford and Avanti Energy

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Avanti Energy. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 6.81 times less risky than Avanti Energy. The stock trades about -0.27 of its potential returns per unit of risk. The Avanti Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Avanti Energy on October 10, 2024 and sell it today you would earn a total of  1.00  from holding Avanti Energy or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Ford Motor  vs.  Avanti Energy

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Avanti Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avanti Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Ford and Avanti Energy

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

The idea behind Ford Motor and Avanti Energy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.