Correlation Between Ford and Ab California

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

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

Diversification Opportunities for Ford and Ab California

0.02

Correlation Coefficient

Ford  Ab California

Significant diversification

The 3 months correlation between Ford and ALCAX is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Ab California Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab California Portfolio 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 Ab California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab California Portfolio has no effect on the direction of Ford i.e., Ford and Ab California go up and down completely randomly.

Pair Corralation between Ford and Ab California

Taking into account the 90-day investment horizon Ford is expected to generate 3.33 times less return on investment than Ab California. In addition to that, Ford is 9.68 times more volatile than Ab California Portfolio. It trades about 0.0 of its total potential returns per unit of risk. Ab California Portfolio is currently generating about 0.05 per unit of volatility. If you would invest  995.00  in Ab California Portfolio on September 26, 2024 and sell it today you would earn a total of  52.00  from holding Ab California Portfolio or generate 5.23% return on investment over 90 days.

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

Ford Motor  vs.  Ab California Portfolio

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.

Ab California Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab California Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab California 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 Ab California

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

The idea behind Ford Motor and Ab California Portfolio 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.