Correlation Between Ford and Vanguard Explorer

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

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

Diversification Opportunities for Ford and Vanguard Explorer

0.48

Correlation Coefficient

Ford  Vanguard Explorer

Very weak diversification

The 3 months correlation between Ford and Vanguard is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Vanguard Explorer Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer Value 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 Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer Value has no effect on the direction of Ford i.e., Ford and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Ford and Vanguard Explorer

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Vanguard Explorer. In addition to that, Ford is 2.04 times more volatile than Vanguard Explorer Value. It trades about -0.19 of its total potential returns per unit of risk. Vanguard Explorer Value is currently generating about 0.06 per unit of volatility. If you would invest  5,176  in Vanguard Explorer Value on September 14, 2024 and sell it today you would earn a total of  50.00  from holding Vanguard Explorer Value or generate 0.97% return on investment over 90 days.

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

Ford Motor  vs.  Vanguard Explorer Value

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vanguard Explorer Value

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Explorer Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Explorer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Vanguard Explorer

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

The idea behind Ford Motor and Vanguard Explorer Value 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.