Correlation Between Ford and FlexShares STOXX

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

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

Diversification Opportunities for Ford and FlexShares STOXX

0.15

Correlation Coefficient

Ford  FlexShares STOXX

Average diversification

The 3 months correlation between Ford and FlexShares is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global 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 FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of Ford i.e., Ford and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Ford and FlexShares STOXX

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the FlexShares STOXX. In addition to that, Ford is 2.6 times more volatile than FlexShares STOXX Global. It trades about -0.02 of its total potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.03 per unit of volatility. If you would invest  16,744  in FlexShares STOXX Global on October 20, 2024 and sell it today you would earn a total of  387.30  from holding FlexShares STOXX Global or generate 2.31% return on investment over 90 days.

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

Ford Motor  vs.  FlexShares STOXX Global

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.

FlexShares STOXX Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares STOXX Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ford and FlexShares STOXX

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

The idea behind Ford Motor and FlexShares STOXX Global 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .