Correlation Between Ford and Decibel Cannabis

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

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

Diversification Opportunities for Ford and Decibel Cannabis

-0.02

Correlation Coefficient

Ford  Decibel Cannabis

Good diversification

The 3 months correlation between Ford and Decibel is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis 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 Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Ford i.e., Ford and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Ford and Decibel Cannabis

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Decibel Cannabis. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 3.19 times less risky than Decibel Cannabis. The stock trades about 0.0 of its potential returns per unit of risk. The Decibel Cannabis is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Decibel Cannabis on September 14, 2024 and sell it today you would lose (6.00) from holding Decibel Cannabis or give up 46.15% of portfolio value over 90 days.

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

Ford Motor  vs.  Decibel Cannabis

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

Decibel Cannabis

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Decibel Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Decibel Cannabis showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Decibel Cannabis

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

The idea behind Ford Motor and Decibel Cannabis 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .