Correlation Between Ford and Duolingo

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

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

Diversification Opportunities for Ford and Duolingo

-0.47

Correlation Coefficient

Ford  Duolingo

Very good diversification

The 3 months correlation between Ford and Duolingo is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Duolingo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duolingo 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 Duolingo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duolingo has no effect on the direction of Ford i.e., Ford and Duolingo go up and down completely randomly.

Pair Corralation between Ford and Duolingo

Taking into account the 90-day investment horizon Ford is expected to generate 1.73 times less return on investment than Duolingo. But when comparing it to its historical volatility, Ford Motor is 2.08 times less risky than Duolingo. It trades about 0.03 of its potential returns per unit of risk. Duolingo is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  33,334  in Duolingo on December 27, 2024 and sell it today you would lose (40.00) from holding Duolingo or give up 0.12% of portfolio value over 90 days.

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

Ford Motor  vs.  Duolingo

Ford Motor

Risk-Adjusted Performance

Insignificant

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.

Duolingo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Duolingo are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Duolingo is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ford and Duolingo

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

The idea behind Ford Motor and Duolingo 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..