Correlation Between Ford and Sleep Cycle

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

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

Diversification Opportunities for Ford and Sleep Cycle

0.25

Correlation Coefficient

Ford  Sleep Cycle

Modest diversification

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

Pair Corralation between Ford and Sleep Cycle

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Sleep Cycle. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.08 times less risky than Sleep Cycle. The stock trades about -0.21 of its potential returns per unit of risk. The Sleep Cycle AB is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  4,050  in Sleep Cycle AB on September 21, 2024 and sell it today you would lose (310.00) from holding Sleep Cycle AB or give up 7.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Ford Motor  vs.  Sleep Cycle AB

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.

Sleep Cycle AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sleep Cycle AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Ford and Sleep Cycle

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

The idea behind Ford Motor and Sleep Cycle AB 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.