Correlation Between Ford and Pioneer Natural

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

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

Diversification Opportunities for Ford and Pioneer Natural

0.34

Correlation Coefficient

Ford  Pioneer Natural

Weak diversification

The 3 months correlation between Ford and Pioneer is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Pioneer Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pioneer Natural Resources 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 Pioneer Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pioneer Natural Resources has no effect on the direction of Ford i.e., Ford and Pioneer Natural go up and down completely randomly.

Pair Corralation between Ford and Pioneer Natural

Taking into account the 90-day investment horizon Ford is expected to generate 67.84 times less return on investment than Pioneer Natural. But when comparing it to its historical volatility, Ford Motor is 20.52 times less risky than Pioneer Natural. It trades about 0.01 of its potential returns per unit of risk. Pioneer Natural Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  19,612  in Pioneer Natural Resources on September 23, 2024 and sell it today you would lose (19,572) from holding Pioneer Natural Resources or give up 99.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.99%
Values	Daily Returns

Ford Motor  vs.  Pioneer Natural Resources

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pioneer Natural Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pioneer Natural Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pioneer Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Pioneer Natural

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

The idea behind Ford Motor and Pioneer Natural Resources 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.