Correlation Between Ford and WHA Utilities

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

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

Diversification Opportunities for Ford and WHA Utilities

0.29

Correlation Coefficient

Ford  WHA Utilities

Modest diversification

The 3 months correlation between Ford and WHA is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and WHA Utilities and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WHA Utilities 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 WHA Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WHA Utilities has no effect on the direction of Ford i.e., Ford and WHA Utilities go up and down completely randomly.

Pair Corralation between Ford and WHA Utilities

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.84 times more return on investment than WHA Utilities. However, Ford Motor is 1.19 times less risky than WHA Utilities. It trades about -0.25 of its potential returns per unit of risk. WHA Utilities and is currently generating about -0.27 per unit of risk. If you would invest  1,056  in Ford Motor on October 11, 2024 and sell it today you would lose (82.00) from holding Ford Motor or give up 7.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  WHA Utilities and

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

WHA Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WHA Utilities and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ford and WHA Utilities

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

The idea behind Ford Motor and WHA Utilities and 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.