Correlation Between Ford and Tompkins Financial

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

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

Diversification Opportunities for Ford and Tompkins Financial

0.27

Correlation Coefficient

Ford  Tompkins Financial

Modest diversification

The 3 months correlation between Ford and Tompkins is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Tompkins Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tompkins Financial 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 Tompkins Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tompkins Financial has no effect on the direction of Ford i.e., Ford and Tompkins Financial go up and down completely randomly.

Pair Corralation between Ford and Tompkins Financial

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Tompkins Financial. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.41 times less risky than Tompkins Financial. The stock trades about -0.47 of its potential returns per unit of risk. The Tompkins Financial is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  7,606  in Tompkins Financial on September 24, 2024 and sell it today you would lose (668.00) from holding Tompkins Financial or give up 8.78% of portfolio value over 90 days.

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

Ford Motor  vs.  Tompkins Financial

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Tompkins Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tompkins Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent primary indicators, Tompkins Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Tompkins Financial

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

The idea behind Ford Motor and Tompkins Financial 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.