Correlation Between Ford and CARDINAL

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

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

Diversification Opportunities for Ford and CARDINAL

0.43

Correlation Coefficient

Ford  CARDINAL

Very weak diversification

The 3 months correlation between Ford and CARDINAL is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CARDINAL HEALTH INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARDINAL HEALTH INC 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 CARDINAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARDINAL HEALTH INC has no effect on the direction of Ford i.e., Ford and CARDINAL go up and down completely randomly.

Pair Corralation between Ford and CARDINAL

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the CARDINAL. In addition to that, Ford is 1.5 times more volatile than CARDINAL HEALTH INC. It trades about -0.09 of its total potential returns per unit of risk. CARDINAL HEALTH INC is currently generating about -0.06 per unit of volatility. If you would invest  8,486  in CARDINAL HEALTH INC on December 2, 2024 and sell it today you would lose (237.00) from holding CARDINAL HEALTH INC or give up 2.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	62.3%
Values	Daily Returns

Ford Motor  vs.  CARDINAL HEALTH INC

Ford Motor

Risk-Adjusted Performance

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.

CARDINAL HEALTH INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days CARDINAL HEALTH INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CARDINAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and CARDINAL

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

The idea behind Ford Motor and CARDINAL HEALTH INC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.