Correlation Between Ford and DHI

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

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

Diversification Opportunities for Ford and DHI

0.36

Correlation Coefficient

Ford  DHI

Weak diversification

The 3 months correlation between Ford and DHI is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and DHI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHI Group 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 DHI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DHI Group has no effect on the direction of Ford i.e., Ford and DHI go up and down completely randomly.

Pair Corralation between Ford and DHI

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.58 times more return on investment than DHI. However, Ford Motor is 1.71 times less risky than DHI. It trades about 0.01 of its potential returns per unit of risk. DHI Group is currently generating about -0.03 per unit of risk. If you would invest  1,138  in Ford Motor on September 2, 2024 and sell it today you would lose (25.00) from holding Ford Motor or give up 2.2% of portfolio value over 90 days.

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

Ford Motor  vs.  DHI Group

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) 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.

DHI Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DHI Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, DHI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and DHI

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

The idea behind Ford Motor and DHI Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.