Correlation Between Ford and LVMH Mot

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

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

Diversification Opportunities for Ford and LVMH Mot

-0.61

Correlation Coefficient

Ford  LVMH Mot

Excellent diversification

The 3 months correlation between Ford and LVMH is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy 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 LVMH Mot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Ford i.e., Ford and LVMH Mot go up and down completely randomly.

Pair Corralation between Ford and LVMH Mot

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the LVMH Mot. In addition to that, Ford is 1.0 times more volatile than LVMH Mot Hennessy. It trades about -0.27 of its total potential returns per unit of risk. LVMH Mot Hennessy is currently generating about -0.07 per unit of volatility. If you would invest  65,460  in LVMH Mot Hennessy on October 10, 2024 and sell it today you would lose (1,220) from holding LVMH Mot Hennessy or give up 1.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.0%
Values	Daily Returns

Ford Motor  vs.  LVMH Mot Hennessy

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.

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ford and LVMH Mot

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

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