Correlation Between Ford and ETP

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

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

Diversification Opportunities for Ford and ETP

0.05

Correlation Coefficient

Ford  ETP

Significant diversification

The 3 months correlation between Ford and ETP is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ETP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETP 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 ETP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETP has no effect on the direction of Ford i.e., Ford and ETP go up and down completely randomly.

Pair Corralation between Ford and ETP

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the ETP. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 49.25 times less risky than ETP. The stock trades about -0.09 of its potential returns per unit of risk. The ETP is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.59  in ETP on December 1, 2024 and sell it today you would earn a total of  2.35  from holding ETP or generate 400.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

Ford Motor  vs.  ETP

Ford Motor

Risk-Adjusted Performance

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.

ETP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ETP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and ETP

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

The idea behind Ford Motor and ETP 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.