Correlation Between Ford and General Electric

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

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

Diversification Opportunities for Ford and General Electric

0.59

Correlation Coefficient

Ford  General Electric

Very weak diversification

The 3 months correlation between Ford and General is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Ford i.e., Ford and General Electric go up and down completely randomly.

Pair Corralation between Ford and General Electric

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the General Electric. In addition to that, Ford is 1.5 times more volatile than General Electric. It trades about -0.27 of its total potential returns per unit of risk. General Electric is currently generating about 0.19 per unit of volatility. If you would invest  16,122  in General Electric on October 10, 2024 and sell it today you would earn a total of  528.00  from holding General Electric or generate 3.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

Ford Motor  vs.  General Electric

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 abnormal 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.

General Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, General Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ford and General Electric

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

The idea behind Ford Motor and General Electric 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.