Correlation Between Ford and MT Bank

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Can any of the company-specific risk be diversified away by investing in both Ford and MT Bank 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 MT Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and MT Bank, you can compare the effects of market volatilities on Ford and MT Bank 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 MT Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and MT Bank.

Diversification Opportunities for Ford and MT Bank

FordMTB-PHDiversified AwayFordMTB-PHDiversified Away100%
0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ford and MTB-PH is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and MT Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MT Bank 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 MT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MT Bank has no effect on the direction of Ford i.e., Ford and MT Bank go up and down completely randomly.

Pair Corralation between Ford and MT Bank

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the MT Bank. In addition to that, Ford is 2.2 times more volatile than MT Bank. It trades about -0.08 of its total potential returns per unit of risk. MT Bank is currently generating about -0.04 per unit of volatility. If you would invest  2,498  in MT Bank on October 13, 2024 and sell it today you would lose (66.00) from holding MT Bank or give up 2.64% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  MT Bank

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -50510
JavaScript chart by amCharts 3.21.15F MTB-PH
       Timeline  
Ford Motor 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 unfluctuating 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.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan9.51010.51111.5
MT Bank 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MT Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, MT Bank is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan2424.52525.5

Ford and MT Bank Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.2-2.39-1.59-0.79-0.01340.751.522.293.05 0.10.20.30.4
JavaScript chart by amCharts 3.21.15F MTB-PH
       Returns  

Pair Trading with Ford and MT Bank

The main advantage of trading using opposite Ford and MT Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, MT Bank 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 MT Bank will offset losses from the drop in MT Bank's long position.
The idea behind Ford Motor and MT Bank 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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