Correlation Between Ford and Roto Pumps

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

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

Diversification Opportunities for Ford and Roto Pumps

-0.52

Correlation Coefficient

Ford  Roto Pumps

Excellent diversification

The 3 months correlation between Ford and Roto is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Roto Pumps Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roto Pumps Limited 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 Roto Pumps. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roto Pumps Limited has no effect on the direction of Ford i.e., Ford and Roto Pumps go up and down completely randomly.

Pair Corralation between Ford and Roto Pumps

Taking into account the 90-day investment horizon Ford is expected to generate 10.39 times less return on investment than Roto Pumps. But when comparing it to its historical volatility, Ford Motor is 1.31 times less risky than Roto Pumps. It trades about 0.01 of its potential returns per unit of risk. Roto Pumps Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,125  in Roto Pumps Limited on September 17, 2024 and sell it today you would earn a total of  13,565  from holding Roto Pumps Limited or generate 74.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.91%
Values	Daily Returns

Ford Motor  vs.  Roto Pumps Limited

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

Roto Pumps Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Roto Pumps Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Roto Pumps unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Roto Pumps

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

The idea behind Ford Motor and Roto Pumps Limited 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.

Check out your portfolio center.

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.