Correlation Between Ford and Hawaiian Electric

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

Diversification Opportunities for Ford and Hawaiian Electric

-0.12

Correlation Coefficient

Ford  Hawaiian Electric

Good diversification

The 3 months correlation between Ford and Hawaiian is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Hawaiian Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian 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 Hawaiian Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Electric has no effect on the direction of Ford i.e., Ford and Hawaiian Electric go up and down completely randomly.

Pair Corralation between Ford and Hawaiian Electric

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Hawaiian Electric. In addition to that, Ford is 1.06 times more volatile than Hawaiian Electric. It trades about -0.39 of its total potential returns per unit of risk. Hawaiian Electric is currently generating about -0.21 per unit of volatility. If you would invest  1,600  in Hawaiian Electric on September 23, 2024 and sell it today you would lose (99.00) from holding Hawaiian Electric or give up 6.19% of portfolio value over 90 days.

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

Ford Motor  vs.  Hawaiian 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 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.

Hawaiian Electric

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hawaiian Electric are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Hawaiian Electric is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ford and Hawaiian Electric

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

The idea behind Ford Motor and Hawaiian 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.