Correlation Between Ford and TTW Public

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

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

Diversification Opportunities for Ford and TTW Public

-0.28

Correlation Coefficient

Ford  TTW Public

Very good diversification

The 3 months correlation between Ford and TTW is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and TTW Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TTW Public 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 TTW Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TTW Public has no effect on the direction of Ford i.e., Ford and TTW Public go up and down completely randomly.

Pair Corralation between Ford and TTW Public

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the TTW Public. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.25 times less risky than TTW Public. The stock trades about -0.31 of its potential returns per unit of risk. The TTW Public is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  24.00  in TTW Public on October 1, 2024 and sell it today you would earn a total of  1.00  from holding TTW Public or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Ford Motor  vs.  TTW Public

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.

TTW Public

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ford and TTW Public

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

The idea behind Ford Motor and TTW Public 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.