Correlation Between Ford and Fidelity Equity

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

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

Diversification Opportunities for Ford and Fidelity Equity

0.75

Correlation Coefficient

Ford  Fidelity Equity

Poor diversification

The 3 months correlation between Ford and Fidelity is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Fidelity Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Equity Income 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 Fidelity Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Equity Income has no effect on the direction of Ford i.e., Ford and Fidelity Equity go up and down completely randomly.

Pair Corralation between Ford and Fidelity Equity

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Fidelity Equity. In addition to that, Ford is 1.83 times more volatile than Fidelity Equity Income Fund. It trades about -0.5 of its total potential returns per unit of risk. Fidelity Equity Income Fund is currently generating about -0.61 per unit of volatility. If you would invest  8,114  in Fidelity Equity Income Fund on September 24, 2024 and sell it today you would lose (732.00) from holding Fidelity Equity Income Fund or give up 9.02% of portfolio value over 90 days.

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

Ford Motor  vs.  Fidelity Equity Income Fund

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 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.

Fidelity Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Equity Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Fidelity Equity 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 Fidelity Equity

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

The idea behind Ford Motor and Fidelity Equity Income Fund 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.