Correlation Between Ford and Kadant

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

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

Diversification Opportunities for Ford and Kadant

0.58

Correlation Coefficient

Ford  Kadant

Very weak diversification

The 3 months correlation between Ford and Kadant is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Kadant Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadant Inc 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 Kadant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadant Inc has no effect on the direction of Ford i.e., Ford and Kadant go up and down completely randomly.

Pair Corralation between Ford and Kadant

Taking into account the 90-day investment horizon Ford is expected to generate 8.05 times less return on investment than Kadant. But when comparing it to its historical volatility, Ford Motor is 1.05 times less risky than Kadant. It trades about 0.03 of its potential returns per unit of risk. Kadant Inc is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  30,308  in Kadant Inc on September 1, 2024 and sell it today you would earn a total of  10,971  from holding Kadant Inc or generate 36.2% return on investment over 90 days.

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

Ford Motor  vs.  Kadant Inc

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Kadant Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Kadant demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Kadant

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

The idea behind Ford Motor and Kadant Inc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.