Correlation Between Ford and Government Bond

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

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

Diversification Opportunities for Ford and Government Bond

-0.24

Correlation Coefficient

Ford  Government Bond

Very good diversification

The 3 months correlation between Ford and Government is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Government Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Bond 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 Government Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Bond has no effect on the direction of Ford i.e., Ford and Government Bond go up and down completely randomly.

Pair Corralation between Ford and Government Bond

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Government Bond. In addition to that, Ford is 6.11 times more volatile than Government Bond Fund. It trades about -0.01 of its total potential returns per unit of risk. Government Bond Fund is currently generating about 0.01 per unit of volatility. If you would invest  920.00  in Government Bond Fund on September 19, 2024 and sell it today you would earn a total of  9.00  from holding Government Bond Fund or generate 0.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Government Bond Fund

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 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.

Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Government Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Government Bond 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 Government Bond

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

The idea behind Ford Motor and Government Bond Fund 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.