Correlation Between Ford and Prudential Short

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

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

Diversification Opportunities for Ford and Prudential Short

0.04

Correlation Coefficient

Ford  Prudential Short

Significant diversification

The 3 months correlation between Ford and Prudential is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration 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 Prudential Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Duration has no effect on the direction of Ford i.e., Ford and Prudential Short go up and down completely randomly.

Pair Corralation between Ford and Prudential Short

Taking into account the 90-day investment horizon Ford Motor is expected to generate 15.45 times more return on investment than Prudential Short. However, Ford is 15.45 times more volatile than Prudential Short Duration. It trades about 0.03 of its potential returns per unit of risk. Prudential Short Duration is currently generating about 0.13 per unit of risk. If you would invest  1,083  in Ford Motor on September 3, 2024 and sell it today you would earn a total of  30.00  from holding Ford Motor or generate 2.77% return on investment over 90 days.

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

Ford Motor  vs.  Prudential Short Duration

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) 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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Prudential Short Duration

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Short Duration are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Short 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 Prudential Short

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

The idea behind Ford Motor and Prudential Short Duration 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.