Correlation Between Ford and Portillos

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

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

Diversification Opportunities for Ford and Portillos

-0.44

Correlation Coefficient

Ford  Portillos

Very good diversification

The 3 months correlation between Ford and Portillos is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Portillos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portillos 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 Portillos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portillos has no effect on the direction of Ford i.e., Ford and Portillos go up and down completely randomly.

Pair Corralation between Ford and Portillos

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.77 times more return on investment than Portillos. However, Ford Motor is 1.3 times less risky than Portillos. It trades about 0.17 of its potential returns per unit of risk. Portillos is currently generating about -0.23 per unit of risk. If you would invest  1,033  in Ford Motor on August 31, 2024 and sell it today you would earn a total of  77.00  from holding Ford Motor or generate 7.45% 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.  Portillos

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) 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.

Portillos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Portillos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Portillos is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and Portillos

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

The idea behind Ford Motor and Portillos 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 Global Correlations module to find global opportunities by holding instruments from different markets.