Correlation Between Ford and Absa Group

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

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

Diversification Opportunities for Ford and Absa Group

-0.19

Correlation Coefficient

Ford  Absa Group

Good diversification

The 3 months correlation between Ford and Absa is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Absa Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group 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 Absa Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group has no effect on the direction of Ford i.e., Ford and Absa Group go up and down completely randomly.

Pair Corralation between Ford and Absa Group

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Absa Group. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.11 times less risky than Absa Group. The stock trades about -0.04 of its potential returns per unit of risk. The Absa Group Ltd is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,970  in Absa Group Ltd on December 5, 2024 and sell it today you would lose (10.00) from holding Absa Group Ltd or give up 0.51% of portfolio value over 90 days.

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

Ford Motor  vs.  Absa Group Ltd

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.

Absa Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Absa Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Absa Group

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

The idea behind Ford Motor and Absa Group Ltd 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.