Correlation Between Ford and Equity Index

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

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

Diversification Opportunities for Ford and Equity Index

0.38

Correlation Coefficient

Ford  Equity Index

Weak diversification

The 3 months correlation between Ford and Equity is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Equity Index Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Index Investor 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 Equity Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Index Investor has no effect on the direction of Ford i.e., Ford and Equity Index go up and down completely randomly.

Pair Corralation between Ford and Equity Index

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Equity Index. In addition to that, Ford is 2.35 times more volatile than Equity Index Investor. It trades about -0.32 of its total potential returns per unit of risk. Equity Index Investor is currently generating about 0.06 per unit of volatility. If you would invest  6,003  in Equity Index Investor on September 18, 2024 and sell it today you would earn a total of  48.00  from holding Equity Index Investor or generate 0.8% 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.  Equity Index Investor

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.

Equity Index Investor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Index Investor are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Equity Index 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 Equity Index

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

The idea behind Ford Motor and Equity Index Investor 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 Global Correlations module to find global opportunities by holding instruments from different markets.