Correlation Between Ford and Adobe Systems

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

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

Diversification Opportunities for Ford and Adobe Systems

0.69

Correlation Coefficient

Ford  Adobe Systems

Poor diversification

The 3 months correlation between Ford and Adobe is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems 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 Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Ford i.e., Ford and Adobe Systems go up and down completely randomly.

Pair Corralation between Ford and Adobe Systems

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.8 times more return on investment than Adobe Systems. However, Ford Motor is 1.25 times less risky than Adobe Systems. It trades about -0.09 of its potential returns per unit of risk. Adobe Systems Incorporated is currently generating about -0.11 per unit of risk. If you would invest  1,063  in Ford Motor on December 1, 2024 and sell it today you would lose (108.00) from holding Ford Motor or give up 10.16% of portfolio value over 90 days.

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

Ford Motor  vs.  Adobe Systems Incorporated

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Adobe Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Ford and Adobe Systems

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

The idea behind Ford Motor and Adobe Systems Incorporated 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 Transaction History module to view history of all your transactions and understand their impact on performance.