Correlation Between Ford and Construction

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

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

Diversification Opportunities for Ford and Construction

0.82

Correlation Coefficient

Ford  Construction

Very poor diversification

The 3 months correlation between Ford and Construction is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Construction And Housing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Construction And Housing 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 Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Construction And Housing has no effect on the direction of Ford i.e., Ford and Construction go up and down completely randomly.

Pair Corralation between Ford and Construction

Given the investment horizon of 90 days Ford Motor is expected to generate 0.66 times more return on investment than Construction. However, Ford Motor is 1.51 times less risky than Construction. It trades about -0.09 of its potential returns per unit of risk. Construction And Housing is currently generating about -0.19 per unit of risk. If you would invest  2,370  in Ford Motor on December 1, 2024 and sell it today you would lose (104.00) from holding Ford Motor or give up 4.39% of portfolio value over 90 days.

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

Ford Motor  vs.  Construction And Housing

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 somewhat strong basic indicators, Ford is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Construction And Housing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Construction And Housing has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Ford and Construction

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

The idea behind Ford Motor and Construction And Housing 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.