Correlation Between Ford and LPN Development

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

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

Diversification Opportunities for Ford and LPN Development

-0.25

Correlation Coefficient

Ford  LPN Development

Very good diversification

The 3 months correlation between Ford and LPN is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LPN Development Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPN Development Public 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 LPN Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPN Development Public has no effect on the direction of Ford i.e., Ford and LPN Development go up and down completely randomly.

Pair Corralation between Ford and LPN Development

Taking into account the 90-day investment horizon Ford is expected to generate 85.71 times less return on investment than LPN Development. But when comparing it to its historical volatility, Ford Motor is 19.89 times less risky than LPN Development. It trades about 0.01 of its potential returns per unit of risk. LPN Development Public is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  424.00  in LPN Development Public on September 3, 2024 and sell it today you would lose (140.00) from holding LPN Development Public or give up 33.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.58%
Values	Daily Returns

Ford Motor  vs.  LPN Development Public

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

LPN Development Public

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LPN Development Public are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, LPN Development disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and LPN Development

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

The idea behind Ford Motor and LPN Development Public 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.