Correlation Between Ford and Red Moon

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

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

Diversification Opportunities for Ford and Red Moon

-0.46

Correlation Coefficient

Ford  Red Moon

Very good diversification

The 3 months correlation between Ford and Red is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Red Moon Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Moon 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 Red Moon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Moon Resources has no effect on the direction of Ford i.e., Ford and Red Moon go up and down completely randomly.

Pair Corralation between Ford and Red Moon

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Red Moon. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.43 times less risky than Red Moon. The stock trades about 0.0 of its potential returns per unit of risk. The Red Moon Resources is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Red Moon Resources on September 3, 2024 and sell it today you would lose (2.00) from holding Red Moon Resources or give up 4.35% of portfolio value over 90 days.

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

Ford Motor  vs.  Red Moon Resources

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

Red Moon Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Moon Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ford and Red Moon

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

The idea behind Ford Motor and Red Moon 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.