Correlation Between Ford and Power Line

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

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

Diversification Opportunities for Ford and Power Line

-0.25

Correlation Coefficient

Ford  Power Line

Very good diversification

The 3 months correlation between Ford and Power is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Power Line Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Line Engineering 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 Power Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Line Engineering has no effect on the direction of Ford i.e., Ford and Power Line go up and down completely randomly.

Pair Corralation between Ford and Power Line

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.07 times more return on investment than Power Line. However, Ford is 1.07 times more volatile than Power Line Engineering. It trades about -0.01 of its potential returns per unit of risk. Power Line Engineering is currently generating about -0.09 per unit of risk. If you would invest  1,066  in Ford Motor on September 14, 2024 and sell it today you would lose (27.00) from holding Ford Motor or give up 2.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  Power Line Engineering

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Power Line Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Line Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Ford and Power Line

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

The idea behind Ford Motor and Power Line Engineering 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.