Correlation Between Ford and Equatorial Energia

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

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

Diversification Opportunities for Ford and Equatorial Energia

0.21

Correlation Coefficient

Ford  Equatorial Energia

Modest diversification

The 3 months correlation between Ford and Equatorial is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Equatorial Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equatorial Energia 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 Equatorial Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equatorial Energia has no effect on the direction of Ford i.e., Ford and Equatorial Energia go up and down completely randomly.

Pair Corralation between Ford and Equatorial Energia

Taking into account the 90-day investment horizon Ford is expected to generate 6.11 times less return on investment than Equatorial Energia. In addition to that, Ford is 1.34 times more volatile than Equatorial Energia SA. It trades about 0.02 of its total potential returns per unit of risk. Equatorial Energia SA is currently generating about 0.19 per unit of volatility. If you would invest  2,731  in Equatorial Energia SA on December 29, 2024 and sell it today you would earn a total of  496.00  from holding Equatorial Energia SA or generate 18.16% return on investment over 90 days.

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

Ford Motor  vs.  Equatorial Energia SA

Ford Motor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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.

Equatorial Energia

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equatorial Energia SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Equatorial Energia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Equatorial Energia

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

The idea behind Ford Motor and Equatorial Energia SA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.