Correlation Between Ford and Simplify Equity

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

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

Diversification Opportunities for Ford and Simplify Equity

0.61

Correlation Coefficient

Ford  Simplify Equity

Poor diversification

The 3 months correlation between Ford and Simplify is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Simplify Equity PLUS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Equity PLUS 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 Simplify Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Equity PLUS has no effect on the direction of Ford i.e., Ford and Simplify Equity go up and down completely randomly.

Pair Corralation between Ford and Simplify Equity

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Simplify Equity. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.01 times less risky than Simplify Equity. The stock trades about -0.15 of its potential returns per unit of risk. The Simplify Equity PLUS is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  4,466  in Simplify Equity PLUS on October 9, 2024 and sell it today you would lose (257.00) from holding Simplify Equity PLUS or give up 5.75% of portfolio value over 90 days.

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

Ford Motor  vs.  Simplify Equity PLUS

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

Simplify Equity PLUS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simplify Equity PLUS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Simplify Equity is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and Simplify Equity

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

The idea behind Ford Motor and Simplify Equity PLUS 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.