Correlation Between Ford and California Tax

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

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

Diversification Opportunities for Ford and California Tax

-0.44

Correlation Coefficient

Ford  California Tax

Very good diversification

The 3 months correlation between Ford and California is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and California Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Tax Free 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 California Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Tax Free has no effect on the direction of Ford i.e., Ford and California Tax go up and down completely randomly.

Pair Corralation between Ford and California Tax

Taking into account the 90-day investment horizon Ford Motor is expected to generate 11.04 times more return on investment than California Tax. However, Ford is 11.04 times more volatile than California Tax Free Income. It trades about 0.02 of its potential returns per unit of risk. California Tax Free Income is currently generating about -0.12 per unit of risk. If you would invest  957.00  in Ford Motor on December 28, 2024 and sell it today you would earn a total of  15.00  from holding Ford Motor or generate 1.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Ford Motor  vs.  California Tax Free Income

Ford Motor

Risk-Adjusted Performance

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.

California Tax Free

Risk-Adjusted Performance

Very Weak

Over the last 90 days California Tax Free Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, California Tax 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 California Tax

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

The idea behind Ford Motor and California Tax Free Income 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.