Correlation Between Ford and Tangerine Beach

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

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

Diversification Opportunities for Ford and Tangerine Beach

0.05

Correlation Coefficient

Ford  Tangerine Beach

Significant diversification

The 3 months correlation between Ford and Tangerine is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Tangerine Beach Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tangerine Beach Hotels 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 Tangerine Beach. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tangerine Beach Hotels has no effect on the direction of Ford i.e., Ford and Tangerine Beach go up and down completely randomly.

Pair Corralation between Ford and Tangerine Beach

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Tangerine Beach. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.29 times less risky than Tangerine Beach. The stock trades about -0.16 of its potential returns per unit of risk. The Tangerine Beach Hotels is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,200  in Tangerine Beach Hotels on September 16, 2024 and sell it today you would earn a total of  1,100  from holding Tangerine Beach Hotels or generate 17.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  Tangerine Beach Hotels

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.

Tangerine Beach Hotels

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tangerine Beach Hotels are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tangerine Beach sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Tangerine Beach

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

The idea behind Ford Motor and Tangerine Beach Hotels 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.