Correlation Between Ford and Bright Rock

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

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

Diversification Opportunities for Ford and Bright Rock

-0.19

Correlation Coefficient

Ford  Bright Rock

Good diversification

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

Pair Corralation between Ford and Bright Rock

Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.92 times more return on investment than Bright Rock. However, Ford is 2.92 times more volatile than Bright Rock Quality. It trades about 0.03 of its potential returns per unit of risk. Bright Rock Quality is currently generating about -0.03 per unit of risk. If you would invest  971.00  in Ford Motor on December 27, 2024 and sell it today you would earn a total of  19.00  from holding Ford Motor or generate 1.96% return on investment over 90 days.

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

Ford Motor  vs.  Bright Rock Quality

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Bright Rock Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bright Rock Quality has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Bright Rock 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 Bright Rock

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

The idea behind Ford Motor and Bright Rock Quality 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.