Correlation Between Ford and KRISPY KREME

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

By analyzing existing cross correlation between Ford Motor and KRISPY KREME DL 01, you can compare the effects of market volatilities on Ford and KRISPY KREME 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 KRISPY KREME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and KRISPY KREME.

Diversification Opportunities for Ford and KRISPY KREME

-0.25

Correlation Coefficient

Ford  KRISPY KREME

Very good diversification

The 3 months correlation between Ford and KRISPY is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and KRISPY KREME DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRISPY KREME DL 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 KRISPY KREME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRISPY KREME DL has no effect on the direction of Ford i.e., Ford and KRISPY KREME go up and down completely randomly.

Pair Corralation between Ford and KRISPY KREME

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.44 times more return on investment than KRISPY KREME. However, Ford Motor is 2.3 times less risky than KRISPY KREME. It trades about 0.06 of its potential returns per unit of risk. KRISPY KREME DL 01 is currently generating about -0.18 per unit of risk. If you would invest  971.00  in Ford Motor on December 27, 2024 and sell it today you would earn a total of  58.00  from holding Ford Motor or generate 5.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  KRISPY KREME DL 01

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.

KRISPY KREME DL

Risk-Adjusted Performance

Very Weak

Over the last 90 days KRISPY KREME DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ford and KRISPY KREME

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

The idea behind Ford Motor and KRISPY KREME DL 01 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.