Correlation Between Ford and Shotspotter

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

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

Diversification Opportunities for Ford and Shotspotter

0.35

Correlation Coefficient

Ford  Shotspotter

Weak diversification

The 3 months correlation between Ford and Shotspotter is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Shotspotter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shotspotter 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 Shotspotter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shotspotter has no effect on the direction of Ford i.e., Ford and Shotspotter go up and down completely randomly.

Pair Corralation between Ford and Shotspotter

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.54 times more return on investment than Shotspotter. However, Ford Motor is 1.85 times less risky than Shotspotter. It trades about 0.03 of its potential returns per unit of risk. Shotspotter is currently generating about -0.01 per unit of risk. If you would invest  1,083  in Ford Motor on September 3, 2024 and sell it today you would earn a total of  30.00  from holding Ford Motor or generate 2.77% 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.  Shotspotter

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Shotspotter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shotspotter has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Shotspotter is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Ford and Shotspotter

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

The idea behind Ford Motor and Shotspotter 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.