Correlation Between Ford and US Treasury

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

By analyzing existing cross correlation between Ford Motor and US Treasury 3, you can compare the effects of market volatilities on Ford and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and US Treasury.

Diversification Opportunities for Ford and US Treasury

-0.1

Correlation Coefficient

Ford  US Treasury

Good diversification

The 3 months correlation between Ford and UTRE is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and US Treasury 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 3 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 US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 3 has no effect on the direction of Ford i.e., Ford and US Treasury go up and down completely randomly.

Pair Corralation between Ford and US Treasury

Taking into account the 90-day investment horizon Ford Motor is expected to generate 11.06 times more return on investment than US Treasury. However, Ford is 11.06 times more volatile than US Treasury 3. It trades about 0.02 of its potential returns per unit of risk. US Treasury 3 is currently generating about 0.17 per unit of risk. If you would invest  1,007  in Ford Motor on October 26, 2024 and sell it today you would earn a total of  5.00  from holding Ford Motor or generate 0.5% return on investment over 90 days.

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

Ford Motor  vs.  US Treasury 3

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 unfluctuating 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.

US Treasury 3

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in US Treasury 3 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, US Treasury is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and US Treasury

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

The idea behind Ford Motor and US Treasury 3 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.