Correlation Between Ford and Uniteds

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

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

Diversification Opportunities for Ford and Uniteds

0.53

Correlation Coefficient

Ford  Uniteds

Very weak diversification

The 3 months correlation between Ford and Uniteds is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Uniteds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uniteds Limited 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 Uniteds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uniteds Limited has no effect on the direction of Ford i.e., Ford and Uniteds go up and down completely randomly.

Pair Corralation between Ford and Uniteds

Taking into account the 90-day investment horizon Ford is expected to generate 1.47 times less return on investment than Uniteds. In addition to that, Ford is 2.83 times more volatile than Uniteds Limited. It trades about 0.02 of its total potential returns per unit of risk. Uniteds Limited is currently generating about 0.1 per unit of volatility. If you would invest  12,500  in Uniteds Limited on September 5, 2024 and sell it today you would earn a total of  555.00  from holding Uniteds Limited or generate 4.44% return on investment over 90 days.

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

Ford Motor  vs.  Uniteds Limited

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Uniteds Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Uniteds Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Uniteds is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and Uniteds

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

The idea behind Ford Motor and Uniteds Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.