Correlation Between Ford and Houston Natural

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

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

Diversification Opportunities for Ford and Houston Natural

0.22

Correlation Coefficient

Ford  Houston Natural

Modest diversification

The 3 months correlation between Ford and Houston is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Houston Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston Natural Resources 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 Houston Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston Natural Resources has no effect on the direction of Ford i.e., Ford and Houston Natural go up and down completely randomly.

Pair Corralation between Ford and Houston Natural

Taking into account the 90-day investment horizon Ford is expected to generate 5.38 times less return on investment than Houston Natural. But when comparing it to its historical volatility, Ford Motor is 6.19 times less risky than Houston Natural. It trades about 0.02 of its potential returns per unit of risk. Houston Natural Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Houston Natural Resources on September 12, 2024 and sell it today you would lose (23.10) from holding Houston Natural Resources or give up 92.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Ford Motor  vs.  Houston Natural Resources

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Houston Natural Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Houston Natural Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Houston Natural exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Houston Natural

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

The idea behind Ford Motor and Houston Natural Resources 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.