Correlation Between Ford and IG Petrochemicals

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

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

Diversification Opportunities for Ford and IG Petrochemicals

-0.23

Correlation Coefficient

Ford  IG Petrochemicals

Very good diversification

The 3 months correlation between Ford and IGPL is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals 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 IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of Ford i.e., Ford and IG Petrochemicals go up and down completely randomly.

Pair Corralation between Ford and IG Petrochemicals

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the IG Petrochemicals. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.78 times less risky than IG Petrochemicals. The stock trades about -0.32 of its potential returns per unit of risk. The IG Petrochemicals Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  53,330  in IG Petrochemicals Limited on September 20, 2024 and sell it today you would earn a total of  3,695  from holding IG Petrochemicals Limited or generate 6.93% return on investment over 90 days.

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

Ford Motor  vs.  IG Petrochemicals Limited

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 unfluctuating 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.

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IG Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IG Petrochemicals is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and IG Petrochemicals

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

The idea behind Ford Motor and IG Petrochemicals Limited 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..