Correlation Between Ford and Occidental

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

By analyzing existing cross correlation between Ford Motor and Occidental Petroleum 44, you can compare the effects of market volatilities on Ford and Occidental 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 Occidental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Occidental.

Diversification Opportunities for Ford and Occidental

0.4

Correlation Coefficient

Ford  Occidental

Very weak diversification

The 3 months correlation between Ford and Occidental is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Occidental Petroleum 44 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum 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 Occidental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Ford i.e., Ford and Occidental go up and down completely randomly.

Pair Corralation between Ford and Occidental

Taking into account the 90-day investment horizon Ford is expected to generate 1368.1 times less return on investment than Occidental. But when comparing it to its historical volatility, Ford Motor is 25.23 times less risky than Occidental. It trades about 0.0 of its potential returns per unit of risk. Occidental Petroleum 44 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,934  in Occidental Petroleum 44 on October 23, 2024 and sell it today you would earn a total of  1,641  from holding Occidental Petroleum 44 or generate 23.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	65.45%
Values	Daily Returns

Ford Motor  vs.  Occidental Petroleum 44

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.

Occidental Petroleum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum 44 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Occidental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Occidental

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

The idea behind Ford Motor and Occidental Petroleum 44 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.