Correlation Between Ford and Federated Kaufmann

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

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

Diversification Opportunities for Ford and Federated Kaufmann

0.6

Correlation Coefficient

Ford  Federated Kaufmann

Poor diversification

The 3 months correlation between Ford and Federated is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Federated Kaufmann Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Kaufmann Small 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 Federated Kaufmann. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Kaufmann Small has no effect on the direction of Ford i.e., Ford and Federated Kaufmann go up and down completely randomly.

Pair Corralation between Ford and Federated Kaufmann

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Federated Kaufmann. In addition to that, Ford is 1.94 times more volatile than Federated Kaufmann Small. It trades about -0.02 of its total potential returns per unit of risk. Federated Kaufmann Small is currently generating about 0.04 per unit of volatility. If you would invest  4,889  in Federated Kaufmann Small on September 15, 2024 and sell it today you would earn a total of  242.00  from holding Federated Kaufmann Small or generate 4.95% return on investment over 90 days.

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

Ford Motor  vs.  Federated Kaufmann Small

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.

Federated Kaufmann Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Kaufmann Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Federated Kaufmann is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Federated Kaufmann

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

The idea behind Ford Motor and Federated Kaufmann Small 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.