Correlation Between Ford and Energy Revenue

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

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

Diversification Opportunities for Ford and Energy Revenue

0.23

Correlation Coefficient

Ford  Energy Revenue

Modest diversification

The 3 months correlation between Ford and Energy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Energy Revenue Amer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Revenue Amer 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 Energy Revenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Revenue Amer has no effect on the direction of Ford i.e., Ford and Energy Revenue go up and down completely randomly.

Pair Corralation between Ford and Energy Revenue

Taking into account the 90-day investment horizon Ford is expected to generate 255.0 times less return on investment than Energy Revenue. But when comparing it to its historical volatility, Ford Motor is 16.75 times less risky than Energy Revenue. It trades about 0.01 of its potential returns per unit of risk. Energy Revenue Amer is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Energy Revenue Amer on September 3, 2024 and sell it today you would earn a total of  2.51  from holding Energy Revenue Amer or generate 251.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.16%
Values	Daily Returns

Ford Motor  vs.  Energy Revenue Amer

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.

Energy Revenue Amer

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Revenue Amer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Energy Revenue displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Energy Revenue

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

The idea behind Ford Motor and Energy Revenue Amer 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.