Correlation Between Ford and American Films

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

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

Diversification Opportunities for Ford and American Films

0.36

Correlation Coefficient

Ford  American Films

Weak diversification

The 3 months correlation between Ford and American is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American Films in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Films 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 American Films. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Films has no effect on the direction of Ford i.e., Ford and American Films go up and down completely randomly.

Pair Corralation between Ford and American Films

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the American Films. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 13.0 times less risky than American Films. The stock trades about -0.26 of its potential returns per unit of risk. The American Films is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15.00  in American Films on October 10, 2024 and sell it today you would lose (4.00) from holding American Films or give up 26.67% of portfolio value over 90 days.

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

Ford Motor  vs.  American Films

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 latest abnormal 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.

American Films

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Films are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, American Films disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and American Films

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

The idea behind Ford Motor and American Films 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.