Correlation Between Ford and Motech Industries

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

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

Diversification Opportunities for Ford and Motech Industries

-0.45

Correlation Coefficient

Ford  Motech Industries

Very good diversification

The 3 months correlation between Ford and Motech is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Motech Industries Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motech Industries 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 Motech Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motech Industries has no effect on the direction of Ford i.e., Ford and Motech Industries go up and down completely randomly.

Pair Corralation between Ford and Motech Industries

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Motech Industries. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.21 times less risky than Motech Industries. The stock trades about -0.18 of its potential returns per unit of risk. The Motech Industries Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,355  in Motech Industries Co on September 13, 2024 and sell it today you would earn a total of  40.00  from holding Motech Industries Co or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  Motech Industries Co

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.

Motech Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Motech Industries Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Motech Industries is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and Motech Industries

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

The idea behind Ford Motor and Motech Industries 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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.