Correlation Between Ford and Clean Air

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

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

Diversification Opportunities for Ford and Clean Air

0.29

Correlation Coefficient

Ford  Clean Air

Modest diversification

The 3 months correlation between Ford and Clean is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Clean Air Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Air Metals 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 Clean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Air Metals has no effect on the direction of Ford i.e., Ford and Clean Air go up and down completely randomly.

Pair Corralation between Ford and Clean Air

Taking into account the 90-day investment horizon Ford is expected to generate 3.66 times less return on investment than Clean Air. But when comparing it to its historical volatility, Ford Motor is 2.87 times less risky than Clean Air. It trades about 0.04 of its potential returns per unit of risk. Clean Air Metals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.80  in Clean Air Metals on December 23, 2024 and sell it today you would earn a total of  0.40  from holding Clean Air Metals or generate 10.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Clean Air Metals

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) 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.

Clean Air Metals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Clean Air Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Clean Air reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Clean Air

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

The idea behind Ford Motor and Clean Air Metals 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.