Correlation Between Ford and Brighthouse Financial

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

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

Diversification Opportunities for Ford and Brighthouse Financial

0.37

Correlation Coefficient

Ford  Brighthouse Financial

Weak diversification

The 3 months correlation between Ford and Brighthouse is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial 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 Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of Ford i.e., Ford and Brighthouse Financial go up and down completely randomly.

Pair Corralation between Ford and Brighthouse Financial

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Brighthouse Financial. In addition to that, Ford is 1.61 times more volatile than Brighthouse Financial. It trades about -0.02 of its total potential returns per unit of risk. Brighthouse Financial is currently generating about 0.0 per unit of volatility. If you would invest  1,747  in Brighthouse Financial on November 20, 2024 and sell it today you would lose (43.00) from holding Brighthouse Financial or give up 2.46% of portfolio value over 90 days.

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

Ford Motor  vs.  Brighthouse Financial

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.

Brighthouse Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brighthouse Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Preferred Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Ford and Brighthouse Financial

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

The idea behind Ford Motor and Brighthouse Financial 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.

Check out your portfolio center.

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.