Correlation Between Ford and JPM Europe

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

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

Diversification Opportunities for Ford and JPM Europe

0.07

Correlation Coefficient

Ford  JPM Europe

Significant diversification

The 3 months correlation between Ford and JPM is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and JPM Europe Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPM Europe Small 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 JPM Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPM Europe Small has no effect on the direction of Ford i.e., Ford and JPM Europe go up and down completely randomly.

Pair Corralation between Ford and JPM Europe

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the JPM Europe. In addition to that, Ford is 2.73 times more volatile than JPM Europe Small. It trades about -0.05 of its total potential returns per unit of risk. JPM Europe Small is currently generating about -0.04 per unit of volatility. If you would invest  9,102  in JPM Europe Small on October 23, 2024 and sell it today you would lose (181.00) from holding JPM Europe Small or give up 1.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Ford Motor  vs.  JPM Europe Small

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.

JPM Europe Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JPM Europe Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound technical and fundamental indicators, JPM Europe is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and JPM Europe

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

The idea behind Ford Motor and JPM Europe Small 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.