Correlation Between Ford and FDO INV

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

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

Diversification Opportunities for Ford and FDO INV

0.43

Correlation Coefficient

Ford  FDO INV

Very weak diversification

The 3 months correlation between Ford and FDO is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and FDO INV IMOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FDO INV IMOB 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 FDO INV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FDO INV IMOB has no effect on the direction of Ford i.e., Ford and FDO INV go up and down completely randomly.

Pair Corralation between Ford and FDO INV

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the FDO INV. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.95 times less risky than FDO INV. The stock trades about -0.16 of its potential returns per unit of risk. The FDO INV IMOB is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,358  in FDO INV IMOB on September 16, 2024 and sell it today you would earn a total of  142.00  from holding FDO INV IMOB or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  FDO INV IMOB

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.

FDO INV IMOB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FDO INV IMOB are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong fundamental indicators, FDO INV 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 FDO INV

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

The idea behind Ford Motor and FDO INV IMOB 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.