Correlation Between Ford and Total Return

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

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

Diversification Opportunities for Ford and Total Return

-0.41

Correlation Coefficient

Ford  Total Return

Very good diversification

The 3 months correlation between Ford and Total is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Total Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Return 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 Total Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Return has no effect on the direction of Ford i.e., Ford and Total Return go up and down completely randomly.

Pair Corralation between Ford and Total Return

Taking into account the 90-day investment horizon Ford Motor is expected to generate 7.25 times more return on investment than Total Return. However, Ford is 7.25 times more volatile than Total Return Fund. It trades about 0.02 of its potential returns per unit of risk. Total Return Fund is currently generating about -0.08 per unit of risk. If you would invest  1,048  in Ford Motor on September 12, 2024 and sell it today you would earn a total of  8.00  from holding Ford Motor or generate 0.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Total Return Fund

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Total Return Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Total Return 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 Total Return

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

The idea behind Ford Motor and Total Return Fund 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.