Correlation Between Ford and Mineral Resources

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

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

Diversification Opportunities for Ford and Mineral Resources

-0.45

Correlation Coefficient

Ford  Mineral Resources

Very good diversification

The 3 months correlation between Ford and Mineral is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Mineral Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mineral Resources 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 Mineral Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mineral Resources has no effect on the direction of Ford i.e., Ford and Mineral Resources go up and down completely randomly.

Pair Corralation between Ford and Mineral Resources

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Mineral Resources. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.86 times less risky than Mineral Resources. The stock trades about -0.23 of its potential returns per unit of risk. The Mineral Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,546  in Mineral Resources on September 17, 2024 and sell it today you would earn a total of  34.00  from holding Mineral Resources or generate 0.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  Mineral Resources

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.

Mineral Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mineral Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mineral Resources is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and Mineral Resources

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

The idea behind Ford Motor and Mineral Resources 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.