Correlation Between Ford and Value Equity

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

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

Diversification Opportunities for Ford and Value Equity

0.61

Correlation Coefficient

Ford  Value Equity

Poor diversification

The 3 months correlation between Ford and Value is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Value Equity Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity 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 Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Investor has no effect on the direction of Ford i.e., Ford and Value Equity go up and down completely randomly.

Pair Corralation between Ford and Value Equity

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.52 times more return on investment than Value Equity. However, Ford is 1.52 times more volatile than Value Equity Investor. It trades about -0.01 of its potential returns per unit of risk. Value Equity Investor is currently generating about -0.05 per unit of risk. If you would invest  1,066  in Ford Motor on September 16, 2024 and sell it today you would lose (27.00) from holding Ford Motor or give up 2.53% of portfolio value over 90 days.

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

Ford Motor  vs.  Value Equity 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 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.

Value Equity Investor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Value Equity Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Value Equity 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 Value Equity

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

The idea behind Ford Motor and Value Equity 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.