Correlation Between Ford and GENERAL

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

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

Diversification Opportunities for Ford and GENERAL

0.32

Correlation Coefficient

Ford  GENERAL

Weak diversification

The 3 months correlation between Ford and GENERAL is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Ford i.e., Ford and GENERAL go up and down completely randomly.

Pair Corralation between Ford and GENERAL

Taking into account the 90-day investment horizon Ford is expected to generate 3.6 times less return on investment than GENERAL. In addition to that, Ford is 1.1 times more volatile than GENERAL ELEC CAP. It trades about 0.0 of its total potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.02 per unit of volatility. If you would invest  9,770  in GENERAL ELEC CAP on October 11, 2024 and sell it today you would earn a total of  235.00  from holding GENERAL ELEC CAP or generate 2.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	27.88%
Values	Daily Returns

Ford Motor  vs.  GENERAL ELEC CAP

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 abnormal 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.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ford and GENERAL

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

The idea behind Ford Motor and GENERAL ELEC CAP 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.