Correlation Between Ford and Western

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

By analyzing existing cross correlation between Ford Motor and Western Digital 475, you can compare the effects of market volatilities on Ford and Western 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 Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Western.

Diversification Opportunities for Ford and Western

0.47

Correlation Coefficient

Ford  Western

Very weak diversification

The 3 months correlation between Ford and Western is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Western Digital 475 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 475 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 Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital 475 has no effect on the direction of Ford i.e., Ford and Western go up and down completely randomly.

Pair Corralation between Ford and Western

Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.01 times more return on investment than Western. However, Ford is 2.01 times more volatile than Western Digital 475. It trades about 0.0 of its potential returns per unit of risk. Western Digital 475 is currently generating about 0.0 per unit of risk. If you would invest  1,049  in Ford Motor on October 11, 2024 and sell it today you would lose (75.00) from holding Ford Motor or give up 7.15% of portfolio value over 90 days.

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

Ford Motor  vs.  Western Digital 475

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.

Western Digital 475

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Digital 475 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Western 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 Western

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

The idea behind Ford Motor and Western Digital 475 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.