Correlation Between Ford and Makita

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

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

Diversification Opportunities for Ford and Makita

-0.11

Correlation Coefficient

Ford  Makita

Good diversification

The 3 months correlation between Ford and Makita is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Makita in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Makita 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 Makita. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Makita has no effect on the direction of Ford i.e., Ford and Makita go up and down completely randomly.

Pair Corralation between Ford and Makita

Taking into account the 90-day investment horizon Ford is expected to generate 36.34 times less return on investment than Makita. But when comparing it to its historical volatility, Ford Motor is 2.49 times less risky than Makita. It trades about 0.0 of its potential returns per unit of risk. Makita is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  722.00  in Makita on October 11, 2024 and sell it today you would earn a total of  2,062  from holding Makita or generate 285.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.0%
Values	Daily Returns

Ford Motor  vs.  Makita

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Makita

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Makita has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ford and Makita

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

The idea behind Ford Motor and Makita 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.