Correlation Between Ford and Vanguard Small

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

Diversification Opportunities for Ford and Vanguard Small

0.36

Correlation Coefficient

Ford  Vanguard Small

Weak diversification

The 3 months correlation between Ford and Vanguard is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Ford i.e., Ford and Vanguard Small go up and down completely randomly.

Pair Corralation between Ford and Vanguard Small

Taking into account the 90-day investment horizon Ford is expected to generate 27.33 times less return on investment than Vanguard Small. In addition to that, Ford is 1.96 times more volatile than Vanguard Small Cap Growth. It trades about 0.0 of its total potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.25 per unit of volatility. If you would invest  7,177  in Vanguard Small Cap Growth on September 12, 2024 and sell it today you would earn a total of  1,224  from holding Vanguard Small Cap Growth or generate 17.05% return on investment over 90 days.

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

Ford Motor  vs.  Vanguard Small Cap Growth

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.

Vanguard Small Cap

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Vanguard Small

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

The idea behind Ford Motor and Vanguard Small Cap Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.