Correlation Between Ford and DTCOM Direct

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

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

Diversification Opportunities for Ford and DTCOM Direct

-0.49

Correlation Coefficient

Ford  DTCOM Direct

Very good diversification

The 3 months correlation between Ford and DTCOM is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and DTCOM Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTCOM Direct 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 DTCOM Direct. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DTCOM Direct has no effect on the direction of Ford i.e., Ford and DTCOM Direct go up and down completely randomly.

Pair Corralation between Ford and DTCOM Direct

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the DTCOM Direct. In addition to that, Ford is 1.48 times more volatile than DTCOM Direct. It trades about -0.05 of its total potential returns per unit of risk. DTCOM Direct is currently generating about 0.2 per unit of volatility. If you would invest  380.00  in DTCOM Direct on October 23, 2024 and sell it today you would earn a total of  63.00  from holding DTCOM Direct or generate 16.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

Ford Motor  vs.  DTCOM Direct

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.

DTCOM Direct

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DTCOM Direct are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, DTCOM Direct unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and DTCOM Direct

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

The idea behind Ford Motor and DTCOM Direct 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.