Correlation Between Ford and Davis Select

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

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

Diversification Opportunities for Ford and Davis Select

-0.06

Correlation Coefficient

Ford  Davis Select

Good diversification

The 3 months correlation between Ford and Davis is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Davis Select Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Worldwide 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 Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Worldwide has no effect on the direction of Ford i.e., Ford and Davis Select go up and down completely randomly.

Pair Corralation between Ford and Davis Select

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Davis Select. In addition to that, Ford is 2.27 times more volatile than Davis Select Worldwide. It trades about -0.32 of its total potential returns per unit of risk. Davis Select Worldwide is currently generating about 0.08 per unit of volatility. If you would invest  3,793  in Davis Select Worldwide on September 18, 2024 and sell it today you would earn a total of  46.00  from holding Davis Select Worldwide or generate 1.21% 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.  Davis Select Worldwide

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Davis Select Worldwide

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Worldwide are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Davis Select

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

The idea behind Ford Motor and Davis Select Worldwide 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.