Correlation Between Ford and CEA Industries

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

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

Diversification Opportunities for Ford and CEA Industries

-0.18

Correlation Coefficient

Ford  CEA Industries

Good diversification

The 3 months correlation between Ford and CEA is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CEA Industries Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries Warrant 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 CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries Warrant has no effect on the direction of Ford i.e., Ford and CEA Industries go up and down completely randomly.

Pair Corralation between Ford and CEA Industries

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the CEA Industries. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 80.91 times less risky than CEA Industries. The stock trades about -0.01 of its potential returns per unit of risk. The CEA Industries Warrant is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4.01  in CEA Industries Warrant on September 12, 2024 and sell it today you would lose (2.45) from holding CEA Industries Warrant or give up 61.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	45.74%
Values	Daily Returns

Ford Motor  vs.  CEA Industries Warrant

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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.

CEA Industries Warrant

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CEA Industries Warrant are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, CEA Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and CEA Industries

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

The idea behind Ford Motor and CEA Industries Warrant 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.