Correlation Between Ford and Bank of Maharashtra

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

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

Diversification Opportunities for Ford and Bank of Maharashtra

-0.12

Correlation Coefficient

Ford  Bank of Maharashtra

Good diversification

The 3 months correlation between Ford and Bank is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Bank of Maharashtra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Maharashtra 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 Bank of Maharashtra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Maharashtra has no effect on the direction of Ford i.e., Ford and Bank of Maharashtra go up and down completely randomly.

Pair Corralation between Ford and Bank of Maharashtra

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.74 times more return on investment than Bank of Maharashtra. However, Ford Motor is 1.36 times less risky than Bank of Maharashtra. It trades about 0.04 of its potential returns per unit of risk. Bank of Maharashtra is currently generating about -0.04 per unit of risk. If you would invest  957.00  in Ford Motor on December 29, 2024 and sell it today you would earn a total of  33.00  from holding Ford Motor or generate 3.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Ford Motor  vs.  Bank of Maharashtra

Ford Motor

Risk-Adjusted Performance

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.

Bank of Maharashtra

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Maharashtra 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 healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Ford and Bank of Maharashtra

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

The idea behind Ford Motor and Bank of Maharashtra 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.