Correlation Between Ford and First Capital

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

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

Diversification Opportunities for Ford and First Capital

-0.27

Correlation Coefficient

Ford  First Capital

Very good diversification

The 3 months correlation between Ford and First is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and First Capital Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital Bancshares 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 First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital Bancshares has no effect on the direction of Ford i.e., Ford and First Capital go up and down completely randomly.

Pair Corralation between Ford and First Capital

Taking into account the 90-day investment horizon Ford is expected to generate 8.77 times less return on investment than First Capital. In addition to that, Ford is 1.18 times more volatile than First Capital Bancshares. It trades about 0.0 of its total potential returns per unit of risk. First Capital Bancshares is currently generating about 0.03 per unit of volatility. If you would invest  905.00  in First Capital Bancshares on December 5, 2024 and sell it today you would earn a total of  127.00  from holding First Capital Bancshares or generate 14.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.05%
Values	Daily Returns

Ford Motor  vs.  First Capital Bancshares

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.

First Capital Bancshares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and First Capital

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

The idea behind Ford Motor and First Capital Bancshares 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.