Correlation Between Ford and Big Ridge

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

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

Diversification Opportunities for Ford and Big Ridge

0.34

Correlation Coefficient

Ford  Big Ridge

Weak diversification

The 3 months correlation between Ford and Big is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Big Ridge Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Ridge Gold 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 Big Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Ridge Gold has no effect on the direction of Ford i.e., Ford and Big Ridge go up and down completely randomly.

Pair Corralation between Ford and Big Ridge

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.61 times more return on investment than Big Ridge. However, Ford Motor is 1.63 times less risky than Big Ridge. It trades about -0.35 of its potential returns per unit of risk. Big Ridge Gold is currently generating about -0.22 per unit of risk. If you would invest  1,113  in Ford Motor on September 30, 2024 and sell it today you would lose (110.00) from holding Ford Motor or give up 9.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  Big Ridge Gold

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.

Big Ridge Gold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Ridge Gold are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Big Ridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Big Ridge

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

The idea behind Ford Motor and Big Ridge Gold 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.