Correlation Between Ford and Icelandic Salmon

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

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

Diversification Opportunities for Ford and Icelandic Salmon

0.49

Correlation Coefficient

Ford  Icelandic Salmon

Very weak diversification

The 3 months correlation between Ford and Icelandic is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Icelandic Salmon AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icelandic Salmon 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 Icelandic Salmon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icelandic Salmon has no effect on the direction of Ford i.e., Ford and Icelandic Salmon go up and down completely randomly.

Pair Corralation between Ford and Icelandic Salmon

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Icelandic Salmon. In addition to that, Ford is 1.61 times more volatile than Icelandic Salmon AS. It trades about -0.08 of its total potential returns per unit of risk. Icelandic Salmon AS is currently generating about -0.09 per unit of volatility. If you would invest  151,000  in Icelandic Salmon AS on December 3, 2024 and sell it today you would lose (9,000) from holding Icelandic Salmon AS or give up 5.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

Ford Motor  vs.  Icelandic Salmon AS

Ford Motor

Risk-Adjusted Performance

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.

Icelandic Salmon

Risk-Adjusted Performance

Very Weak

Over the last 90 days Icelandic Salmon AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Icelandic Salmon is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Ford and Icelandic Salmon

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

The idea behind Ford Motor and Icelandic Salmon AS 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.