Correlation Between Ford and WisdomTree Battery

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

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

Diversification Opportunities for Ford and WisdomTree Battery

-0.17

Correlation Coefficient

Ford  WisdomTree Battery

Good diversification

The 3 months correlation between Ford and WisdomTree is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and WisdomTree Battery Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Battery Metals 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 WisdomTree Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Battery Metals has no effect on the direction of Ford i.e., Ford and WisdomTree Battery go up and down completely randomly.

Pair Corralation between Ford and WisdomTree Battery

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the WisdomTree Battery. In addition to that, Ford is 2.55 times more volatile than WisdomTree Battery Metals. It trades about -0.02 of its total potential returns per unit of risk. WisdomTree Battery Metals is currently generating about 0.01 per unit of volatility. If you would invest  1,636  in WisdomTree Battery Metals on December 7, 2024 and sell it today you would earn a total of  2.00  from holding WisdomTree Battery Metals or generate 0.12% 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.  WisdomTree Battery Metals

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 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.

WisdomTree Battery Metals

Risk-Adjusted Performance

Weak

Over the last 90 days WisdomTree Battery Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WisdomTree Battery is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and WisdomTree Battery

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

The idea behind Ford Motor and WisdomTree Battery Metals 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.