Correlation Between Ford and PACIFIC

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

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

Diversification Opportunities for Ford and PACIFIC

-0.04

Correlation Coefficient

Ford  PACIFIC

Good diversification

The 3 months correlation between Ford and PACIFIC is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and PACIFIC GAS ELECTRIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACIFIC GAS ELECTRIC 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 PACIFIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACIFIC GAS ELECTRIC has no effect on the direction of Ford i.e., Ford and PACIFIC go up and down completely randomly.

Pair Corralation between Ford and PACIFIC

Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.55 times more return on investment than PACIFIC. However, Ford is 2.55 times more volatile than PACIFIC GAS ELECTRIC. It trades about 0.04 of its potential returns per unit of risk. PACIFIC GAS ELECTRIC is currently generating about -0.08 per unit of risk. If you would invest  959.00  in Ford Motor on December 22, 2024 and sell it today you would earn a total of  41.00  from holding Ford Motor or generate 4.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Ford Motor  vs.  PACIFIC GAS ELECTRIC

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) 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.

PACIFIC GAS ELECTRIC

Risk-Adjusted Performance

Very Weak

Over the last 90 days PACIFIC GAS ELECTRIC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PACIFIC 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 PACIFIC

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

The idea behind Ford Motor and PACIFIC GAS ELECTRIC 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.