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 20, 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

0.67

Correlation Coefficient

Ford  US Treasury

Poor diversification

The 3 months correlation between Ford and UTWY is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and US Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 20 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 20 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 2.28 times more return on investment than US Treasury. However, Ford is 2.28 times more volatile than US Treasury 20. It trades about 0.13 of its potential returns per unit of risk. US Treasury 20 is currently generating about -0.03 per unit of risk. If you would invest  990.00  in Ford Motor on October 22, 2024 and sell it today you would earn a total of  28.00  from holding Ford Motor or generate 2.83% return on investment over 90 days.

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

Ford Motor  vs.  US Treasury 20

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.

US Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, US Treasury 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 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 20 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..