Correlation Between Ford and BUA FOODS

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

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

Diversification Opportunities for Ford and BUA FOODS

-0.42

Correlation Coefficient

Ford  BUA FOODS

Very good diversification

The 3 months correlation between Ford and BUA is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BUA FOODS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BUA FOODS PLC 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 BUA FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BUA FOODS PLC has no effect on the direction of Ford i.e., Ford and BUA FOODS go up and down completely randomly.

Pair Corralation between Ford and BUA FOODS

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BUA FOODS. In addition to that, Ford is 1.26 times more volatile than BUA FOODS PLC. It trades about -0.24 of its total potential returns per unit of risk. BUA FOODS PLC is currently generating about 0.24 per unit of volatility. If you would invest  39,490  in BUA FOODS PLC on October 8, 2024 and sell it today you would earn a total of  2,010  from holding BUA FOODS PLC or generate 5.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Ford Motor  vs.  BUA FOODS PLC

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.

BUA FOODS PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BUA FOODS PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, BUA FOODS is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and BUA FOODS

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

The idea behind Ford Motor and BUA FOODS PLC 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 CEOs Directory module to screen CEOs from public companies around the world.