Correlation Between Ford and Global Lights

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

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

Diversification Opportunities for Ford and Global Lights

0.1

Correlation Coefficient

Ford  Global Lights

Average diversification

The 3 months correlation between Ford and Global is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Global Lights Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Lights Acquisition 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 Global Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Lights Acquisition has no effect on the direction of Ford i.e., Ford and Global Lights go up and down completely randomly.

Pair Corralation between Ford and Global Lights

If you would invest  15.00  in Global Lights Acquisition on October 10, 2024 and sell it today you would earn a total of  0.00  from holding Global Lights Acquisition or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	19.05%
Values	Daily Returns

Ford Motor  vs.  Global Lights Acquisition

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.

Global Lights Acquisition

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Global Lights Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively uncertain fundamental indicators, Global Lights reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Global Lights

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

The idea behind Ford Motor and Global Lights Acquisition 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.