Correlation Between Ford and FirstRand

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

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

Diversification Opportunities for Ford and FirstRand

0.18

Correlation Coefficient

Ford  FirstRand

Average diversification

The 3 months correlation between Ford and FirstRand is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and FirstRand Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstRand ADR 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 FirstRand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstRand ADR has no effect on the direction of Ford i.e., Ford and FirstRand go up and down completely randomly.

Pair Corralation between Ford and FirstRand

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the FirstRand. In addition to that, Ford is 1.19 times more volatile than FirstRand Ltd ADR. It trades about -0.06 of its total potential returns per unit of risk. FirstRand Ltd ADR is currently generating about 0.01 per unit of volatility. If you would invest  4,171  in FirstRand Ltd ADR on October 7, 2024 and sell it today you would lose (41.00) from holding FirstRand Ltd ADR or give up 0.98% of portfolio value over 90 days.

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

Ford Motor  vs.  FirstRand Ltd ADR

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.

FirstRand ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirstRand Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ford and FirstRand

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

The idea behind Ford Motor and FirstRand Ltd ADR 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 CEOs Directory module to screen CEOs from public companies around the world.