Correlation Between Ford and SKC

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

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

Diversification Opportunities for Ford and SKC

-0.17

Correlation Coefficient

Ford  SKC

Good diversification

The 3 months correlation between Ford and SKC is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SKC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SKC Co 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 SKC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SKC Co has no effect on the direction of Ford i.e., Ford and SKC go up and down completely randomly.

Pair Corralation between Ford and SKC

Taking into account the 90-day investment horizon Ford is expected to generate 2.47 times less return on investment than SKC. But when comparing it to its historical volatility, Ford Motor is 2.25 times less risky than SKC. It trades about 0.06 of its potential returns per unit of risk. SKC Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10,690,000  in SKC Co on December 27, 2024 and sell it today you would earn a total of  1,260,000  from holding SKC Co or generate 11.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Ford Motor  vs.  SKC Co

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in April 2025.

SKC Co

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SKC Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SKC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and SKC

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

The idea behind Ford Motor and SKC Co 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.