Correlation Between Ford and MAGNUM DCORP

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

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

Diversification Opportunities for Ford and MAGNUM DCORP

0.06

Correlation Coefficient

Ford  MAGNUM DCORP

Significant diversification

The 3 months correlation between Ford and MAGNUM is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and MAGNUM DCORP INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAGNUM DCORP INC 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 MAGNUM DCORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAGNUM DCORP INC has no effect on the direction of Ford i.e., Ford and MAGNUM DCORP go up and down completely randomly.

Pair Corralation between Ford and MAGNUM DCORP

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the MAGNUM DCORP. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 19.49 times less risky than MAGNUM DCORP. The stock trades about -0.31 of its potential returns per unit of risk. The MAGNUM DCORP INC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3.89  in MAGNUM DCORP INC on September 19, 2024 and sell it today you would lose (1.26) from holding MAGNUM DCORP INC or give up 32.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  MAGNUM DCORP INC

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 nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

MAGNUM DCORP INC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MAGNUM DCORP INC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, MAGNUM DCORP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and MAGNUM DCORP

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

The idea behind Ford Motor and MAGNUM DCORP INC 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.