Correlation Between Ford and Meta Platforms

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

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

Diversification Opportunities for Ford and Meta Platforms

0.02

Correlation Coefficient

Ford  Meta Platforms

Significant diversification

The 3 months correlation between Ford and Meta is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Ford i.e., Ford and Meta Platforms go up and down completely randomly.

Pair Corralation between Ford and Meta Platforms

Taking into account the 90-day investment horizon Ford is expected to generate 5.19 times less return on investment than Meta Platforms. In addition to that, Ford is 1.34 times more volatile than Meta Platforms. It trades about 0.01 of its total potential returns per unit of risk. Meta Platforms is currently generating about 0.1 per unit of volatility. If you would invest  52,081  in Meta Platforms on August 30, 2024 and sell it today you would earn a total of  4,839  from holding Meta Platforms or generate 9.29% return on investment over 90 days.

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

Ford Motor  vs.  Meta Platforms

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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.

Meta Platforms

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ford and Meta Platforms

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

The idea behind Ford Motor and Meta Platforms 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.