Correlation Between Ford and Smallcap World

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

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

Diversification Opportunities for Ford and Smallcap World

0.31

Correlation Coefficient

Ford  Smallcap World

Weak diversification

The 3 months correlation between Ford and Smallcap is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World 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 Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Ford i.e., Ford and Smallcap World go up and down completely randomly.

Pair Corralation between Ford and Smallcap World

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Smallcap World. In addition to that, Ford is 2.69 times more volatile than Smallcap World Fund. It trades about 0.0 of its total potential returns per unit of risk. Smallcap World Fund is currently generating about 0.09 per unit of volatility. If you would invest  6,424  in Smallcap World Fund on September 13, 2024 and sell it today you would earn a total of  274.00  from holding Smallcap World Fund or generate 4.27% return on investment over 90 days.

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

Ford Motor  vs.  Smallcap World Fund

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.

Smallcap World

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Smallcap World 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 Smallcap World

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

The idea behind Ford Motor and Smallcap World 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.