Correlation Between Ford and GMO Internet

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

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

Diversification Opportunities for Ford and GMO Internet

-0.48

Correlation Coefficient

Ford  GMO Internet

Very good diversification

The 3 months correlation between Ford and GMO is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet 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 GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Ford i.e., Ford and GMO Internet go up and down completely randomly.

Pair Corralation between Ford and GMO Internet

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.16 times more return on investment than GMO Internet. However, Ford is 1.16 times more volatile than GMO Internet. It trades about -0.08 of its potential returns per unit of risk. GMO Internet is currently generating about -0.34 per unit of risk. If you would invest  999.00  in Ford Motor on October 17, 2024 and sell it today you would lose (21.00) from holding Ford Motor or give up 2.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	89.47%
Values	Daily Returns

Ford Motor  vs.  GMO Internet

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.

GMO Internet

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ford and GMO Internet

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

The idea behind Ford Motor and GMO Internet 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.