Correlation Between Ford and Vanguard Short

Can any of the company-specific risk be diversified away by investing in both Ford and Vanguard Short 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 Short 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 Short Term Federal, you can compare the effects of market volatilities on Ford and Vanguard Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Vanguard Short.

Diversification Opportunities for Ford and Vanguard Short

-0.51

Correlation Coefficient

Ford  Vanguard Short

Excellent diversification

The 3 months correlation between Ford and Vanguard is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Vanguard Short Term Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of Ford i.e., Ford and Vanguard Short go up and down completely randomly.

Pair Corralation between Ford and Vanguard Short

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Vanguard Short. In addition to that, Ford is 14.12 times more volatile than Vanguard Short Term Federal. It trades about -0.13 of its total potential returns per unit of risk. Vanguard Short Term Federal is currently generating about 0.13 per unit of volatility. If you would invest  1,012  in Vanguard Short Term Federal on November 29, 2024 and sell it today you would earn a total of  10.00  from holding Vanguard Short Term Federal or generate 0.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Ford Motor  vs.  Vanguard Short Term Federal

Ford Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Vanguard Short Term

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Federal are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Vanguard Short 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 Vanguard Short

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

The idea behind Ford Motor and Vanguard Short Term Federal 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.