Correlation Between Ford and SPDR SP

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

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

Diversification Opportunities for Ford and SPDR SP

0.26

Correlation Coefficient

Ford  SPDR SP

Modest diversification

The 3 months correlation between Ford and SPDR is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SPDR SP Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Financials 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Financials has no effect on the direction of Ford i.e., Ford and SPDR SP go up and down completely randomly.

Pair Corralation between Ford and SPDR SP

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the SPDR SP. In addition to that, Ford is 2.22 times more volatile than SPDR SP Financials. It trades about 0.0 of its total potential returns per unit of risk. SPDR SP Financials is currently generating about 0.07 per unit of volatility. If you would invest  4,136  in SPDR SP Financials on September 29, 2024 and sell it today you would earn a total of  1,549  from holding SPDR SP Financials or generate 37.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Ford Motor  vs.  SPDR SP Financials

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.

SPDR SP Financials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Financials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and SPDR SP

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

The idea behind Ford Motor and SPDR SP Financials 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.