Correlation Between Ford and First Trust

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

Diversification Opportunities for Ford and First Trust

0.4

Correlation Coefficient

Ford  First Trust

Very weak diversification

The 3 months correlation between Ford and First is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and First Trust Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Morningstar 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Morningstar has no effect on the direction of Ford i.e., Ford and First Trust go up and down completely randomly.

Pair Corralation between Ford and First Trust

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the First Trust. In addition to that, Ford is 3.55 times more volatile than First Trust Morningstar. It trades about 0.0 of its total potential returns per unit of risk. First Trust Morningstar is currently generating about 0.06 per unit of volatility. If you would invest  3,467  in First Trust Morningstar on September 13, 2024 and sell it today you would earn a total of  68.00  from holding First Trust Morningstar or generate 1.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Ford Motor  vs.  First Trust Morningstar

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.

First Trust Morningstar

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Morningstar are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and First Trust

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

The idea behind Ford Motor and First Trust Morningstar 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.