Correlation Between Ford and Pace Mortgage

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

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

Diversification Opportunities for Ford and Pace Mortgage

0.59

Correlation Coefficient

Ford  Pace Mortgage

Very weak diversification

The 3 months correlation between Ford and Pace is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Pace Mortgage Backed Securitie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Mortgage Backed 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 Pace Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Mortgage Backed has no effect on the direction of Ford i.e., Ford and Pace Mortgage go up and down completely randomly.

Pair Corralation between Ford and Pace Mortgage

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Pace Mortgage. In addition to that, Ford is 5.24 times more volatile than Pace Mortgage Backed Securities. It trades about -0.05 of its total potential returns per unit of risk. Pace Mortgage Backed Securities is currently generating about -0.05 per unit of volatility. If you would invest  1,019  in Pace Mortgage Backed Securities on October 22, 2024 and sell it today you would lose (11.00) from holding Pace Mortgage Backed Securities or give up 1.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Ford Motor  vs.  Pace Mortgage Backed Securitie

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.

Pace Mortgage Backed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Mortgage Backed Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pace Mortgage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Pace Mortgage

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

The idea behind Ford Motor and Pace Mortgage Backed Securities 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.