Correlation Between Ford and Peoples Insurance

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

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

Diversification Opportunities for Ford and Peoples Insurance

-0.36

Correlation Coefficient

Ford  Peoples Insurance

Very good diversification

The 3 months correlation between Ford and Peoples is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and The Peoples Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peoples Insurance 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 Peoples Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peoples Insurance has no effect on the direction of Ford i.e., Ford and Peoples Insurance go up and down completely randomly.

Pair Corralation between Ford and Peoples Insurance

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Peoples Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.52 times less risky than Peoples Insurance. The stock trades about -0.02 of its potential returns per unit of risk. The The Peoples Insurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  29.00  in The Peoples Insurance on September 28, 2024 and sell it today you would earn a total of  7.00  from holding The Peoples Insurance or generate 24.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Ford Motor  vs.  The Peoples Insurance

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.

Peoples Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Peoples Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Peoples Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Peoples Insurance

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

The idea behind Ford Motor and The Peoples Insurance 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..