Correlation Between Ford and State Street

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

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

Diversification Opportunities for Ford and State Street

-0.3

Correlation Coefficient

Ford  State Street

Very good diversification

The 3 months correlation between Ford and State is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and State Street Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Aggregate 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Aggregate has no effect on the direction of Ford i.e., Ford and State Street go up and down completely randomly.

Pair Corralation between Ford and State Street

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the State Street. In addition to that, Ford is 5.14 times more volatile than State Street Aggregate. It trades about -0.18 of its total potential returns per unit of risk. State Street Aggregate is currently generating about 0.05 per unit of volatility. If you would invest  8,543  in State Street Aggregate on September 15, 2024 and sell it today you would earn a total of  28.00  from holding State Street Aggregate or generate 0.33% return on investment over 90 days.

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

Ford Motor  vs.  State Street Aggregate

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.

State Street Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Aggregate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, State Street 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 State Street

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

The idea behind Ford Motor and State Street Aggregate 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.