Correlation Between Ford and BUNZL PLC

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

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

Diversification Opportunities for Ford and BUNZL PLC

0.12

Correlation Coefficient

Ford  BUNZL PLC

Average diversification

The 3 months correlation between Ford and BUNZL is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BUNZL PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BUNZL PLC ADR 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 BUNZL PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BUNZL PLC ADR has no effect on the direction of Ford i.e., Ford and BUNZL PLC go up and down completely randomly.

Pair Corralation between Ford and BUNZL PLC

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BUNZL PLC. In addition to that, Ford is 1.05 times more volatile than BUNZL PLC ADR. It trades about -0.28 of its total potential returns per unit of risk. BUNZL PLC ADR is currently generating about -0.06 per unit of volatility. If you would invest  2,050  in BUNZL PLC ADR on September 21, 2024 and sell it today you would lose (50.00) from holding BUNZL PLC ADR or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  BUNZL PLC ADR

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 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.

BUNZL PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BUNZL PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BUNZL PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ford and BUNZL PLC

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

The idea behind Ford Motor and BUNZL PLC ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.