Correlation Between Ford and SEAS Old

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

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

Diversification Opportunities for Ford and SEAS Old

0.56

Correlation Coefficient

Ford  SEAS Old

Very weak diversification

The 3 months correlation between Ford and SEAS is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SEAS Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEAS Old 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 SEAS Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEAS Old has no effect on the direction of Ford i.e., Ford and SEAS Old go up and down completely randomly.

Pair Corralation between Ford and SEAS Old

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.01 times more return on investment than SEAS Old. However, Ford is 1.01 times more volatile than SEAS Old. It trades about 0.01 of its potential returns per unit of risk. SEAS Old is currently generating about -0.01 per unit of risk. If you would invest  1,030  in Ford Motor on October 10, 2024 and sell it today you would lose (54.00) from holding Ford Motor or give up 5.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	26.06%
Values	Daily Returns

Ford Motor  vs.  SEAS Old

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 abnormal 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.

SEAS Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEAS Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SEAS Old is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and SEAS Old

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

The idea behind Ford Motor and SEAS Old 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.