Correlation Between Ford and Karelia Tobacco

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

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

Diversification Opportunities for Ford and Karelia Tobacco

0.1

Correlation Coefficient

Ford  Karelia Tobacco

Average diversification

The 3 months correlation between Ford and Karelia is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Karelia Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karelia Tobacco 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 Karelia Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karelia Tobacco has no effect on the direction of Ford i.e., Ford and Karelia Tobacco go up and down completely randomly.

Pair Corralation between Ford and Karelia Tobacco

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.34 times more return on investment than Karelia Tobacco. However, Ford is 1.34 times more volatile than Karelia Tobacco. It trades about 0.0 of its potential returns per unit of risk. Karelia Tobacco is currently generating about -0.12 per unit of risk. If you would invest  1,010  in Ford Motor on December 20, 2024 and sell it today you would lose (9.00) from holding Ford Motor or give up 0.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Ford Motor  vs.  Karelia Tobacco

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) 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.

Karelia Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Karelia Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Ford and Karelia Tobacco

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

The idea behind Ford Motor and Karelia Tobacco 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.