Correlation Between Ford and Utilities Ultrasector

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

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

Diversification Opportunities for Ford and Utilities Ultrasector

0.61

Correlation Coefficient

Ford  Utilities Ultrasector

Poor diversification

The 3 months correlation between Ford and Utilities is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Utilities Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Ultrasector 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 Utilities Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Ultrasector has no effect on the direction of Ford i.e., Ford and Utilities Ultrasector go up and down completely randomly.

Pair Corralation between Ford and Utilities Ultrasector

Taking into account the 90-day investment horizon Ford is expected to generate 4.32 times less return on investment than Utilities Ultrasector. In addition to that, Ford is 1.5 times more volatile than Utilities Ultrasector Profund. It trades about 0.01 of its total potential returns per unit of risk. Utilities Ultrasector Profund is currently generating about 0.08 per unit of volatility. If you would invest  5,321  in Utilities Ultrasector Profund on September 27, 2024 and sell it today you would earn a total of  1,757  from holding Utilities Ultrasector Profund or generate 33.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.63%
Values	Daily Returns

Ford Motor  vs.  Utilities Ultrasector Profund

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.

Utilities Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ford and Utilities Ultrasector

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

The idea behind Ford Motor and Utilities Ultrasector Profund 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.