Correlation Between Ford and Pimco Rae

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

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

Diversification Opportunities for Ford and Pimco Rae

0.64

Correlation Coefficient

Ford  Pimco Rae

Poor diversification

The 3 months correlation between Ford and Pimco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Pimco Rae Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Rae Fundamental 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 Pimco Rae. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Rae Fundamental has no effect on the direction of Ford i.e., Ford and Pimco Rae go up and down completely randomly.

Pair Corralation between Ford and Pimco Rae

Taking into account the 90-day investment horizon Ford is expected to generate 3.79 times less return on investment than Pimco Rae. In addition to that, Ford is 2.74 times more volatile than Pimco Rae Fundamental. It trades about 0.01 of its total potential returns per unit of risk. Pimco Rae Fundamental is currently generating about 0.05 per unit of volatility. If you would invest  818.00  in Pimco Rae Fundamental on October 21, 2024 and sell it today you would earn a total of  181.00  from holding Pimco Rae Fundamental or generate 22.13% return on investment over 90 days.

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

Ford Motor  vs.  Pimco Rae Fundamental

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.

Pimco Rae Fundamental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pimco Rae Fundamental has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ford and Pimco Rae

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

The idea behind Ford Motor and Pimco Rae Fundamental 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.