Correlation Between Ford and American Outdoor

Can any of the company-specific risk be diversified away by investing in both Ford and American Outdoor 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 Outdoor 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 Outdoor Brands, you can compare the effects of market volatilities on Ford and American Outdoor 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 Outdoor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and American Outdoor.

Diversification Opportunities for Ford and American Outdoor

-0.79

Correlation Coefficient

Ford  American Outdoor

Pay attention - limited upside

The 3 months correlation between Ford and American is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American Outdoor Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Outdoor Brands 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 Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Outdoor Brands has no effect on the direction of Ford i.e., Ford and American Outdoor go up and down completely randomly.

Pair Corralation between Ford and American Outdoor

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the American Outdoor. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.32 times less risky than American Outdoor. The stock trades about -0.09 of its potential returns per unit of risk. The American Outdoor Brands is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  987.00  in American Outdoor Brands on December 1, 2024 and sell it today you would earn a total of  603.00  from holding American Outdoor Brands or generate 61.09% return on investment over 90 days.

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

Ford Motor  vs.  American Outdoor Brands

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.

American Outdoor Brands

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Outdoor Brands are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, American Outdoor unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and American Outdoor

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

The idea behind Ford Motor and American Outdoor Brands 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.