Correlation Between Ford and Prudential Muni

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

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

Diversification Opportunities for Ford and Prudential Muni

0.12

Correlation Coefficient

Ford  Prudential Muni

Average diversification

The 3 months correlation between Ford and Prudential is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Prudential Muni High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Muni High 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 Prudential Muni. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Muni High has no effect on the direction of Ford i.e., Ford and Prudential Muni go up and down completely randomly.

Pair Corralation between Ford and Prudential Muni

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Prudential Muni. In addition to that, Ford is 7.71 times more volatile than Prudential Muni High. It trades about 0.0 of its total potential returns per unit of risk. Prudential Muni High is currently generating about 0.09 per unit of volatility. If you would invest  827.00  in Prudential Muni High on September 28, 2024 and sell it today you would earn a total of  115.00  from holding Prudential Muni High or generate 13.91% return on investment over 90 days.

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

Ford Motor  vs.  Prudential Muni High

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.

Prudential Muni High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Muni High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Prudential Muni 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 Prudential Muni

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

The idea behind Ford Motor and Prudential Muni High 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.