Correlation Between Ford and Diamondrock Hospitality

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

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

Diversification Opportunities for Ford and Diamondrock Hospitality

0.57

Correlation Coefficient

Ford  Diamondrock Hospitality

Very weak diversification

The 3 months correlation between Ford and Diamondrock is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Ford i.e., Ford and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Ford and Diamondrock Hospitality

Taking into account the 90-day investment horizon Ford is expected to generate 2.06 times less return on investment than Diamondrock Hospitality. In addition to that, Ford is 1.19 times more volatile than Diamondrock Hospitality. It trades about 0.03 of its total potential returns per unit of risk. Diamondrock Hospitality is currently generating about 0.08 per unit of volatility. If you would invest  862.00  in Diamondrock Hospitality on September 3, 2024 and sell it today you would earn a total of  66.00  from holding Diamondrock Hospitality or generate 7.66% return on investment over 90 days.

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

Ford Motor  vs.  Diamondrock Hospitality

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Diamondrock Hospitality

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamondrock Hospitality are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Diamondrock Hospitality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Diamondrock Hospitality

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

The idea behind Ford Motor and Diamondrock Hospitality 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.