Correlation Between Ford and Fidelity Quality

Can any of the company-specific risk be diversified away by investing in both Ford and Fidelity Quality 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 Quality 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 Quality Factor, you can compare the effects of market volatilities on Ford and Fidelity Quality 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 Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Fidelity Quality.

Diversification Opportunities for Ford and Fidelity Quality

0.24

Correlation Coefficient

Ford  Fidelity Quality

Modest diversification

The 3 months correlation between Ford and Fidelity is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Fidelity Quality Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Quality Factor 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 Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Quality Factor has no effect on the direction of Ford i.e., Ford and Fidelity Quality go up and down completely randomly.

Pair Corralation between Ford and Fidelity Quality

Taking into account the 90-day investment horizon Ford is expected to generate 3.42 times less return on investment than Fidelity Quality. In addition to that, Ford is 2.85 times more volatile than Fidelity Quality Factor. It trades about 0.01 of its total potential returns per unit of risk. Fidelity Quality Factor is currently generating about 0.11 per unit of volatility. If you would invest  4,302  in Fidelity Quality Factor on September 21, 2024 and sell it today you would earn a total of  2,282  from holding Fidelity Quality Factor or generate 53.05% return on investment over 90 days.

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

Ford Motor  vs.  Fidelity Quality Factor

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 Quality Factor

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Quality Factor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fidelity Quality is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ford and Fidelity Quality

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

The idea behind Ford Motor and Fidelity Quality Factor 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.