Correlation Between Ford and Cosmo Metals

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

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

Diversification Opportunities for Ford and Cosmo Metals

-0.37

Correlation Coefficient

Ford  Cosmo Metals

Very good diversification

The 3 months correlation between Ford and Cosmo is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Cosmo Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosmo 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 Cosmo Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosmo Metals has no effect on the direction of Ford i.e., Ford and Cosmo Metals go up and down completely randomly.

Pair Corralation between Ford and Cosmo Metals

Taking into account the 90-day investment horizon Ford is expected to generate 1.32 times less return on investment than Cosmo Metals. But when comparing it to its historical volatility, Ford Motor is 4.33 times less risky than Cosmo Metals. It trades about 0.06 of its potential returns per unit of risk. Cosmo Metals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1.80  in Cosmo Metals on December 19, 2024 and sell it today you would lose (0.20) from holding Cosmo Metals or give up 11.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Ford Motor  vs.  Cosmo 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 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cosmo Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cosmo Metals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cosmo Metals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ford and Cosmo Metals

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

The idea behind Ford Motor and Cosmo 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.