Correlation Between Ford and Carpenter Technology

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

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

Diversification Opportunities for Ford and Carpenter Technology

0.02

Correlation Coefficient

Ford  Carpenter Technology

Significant diversification

The 3 months correlation between Ford and Carpenter is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology 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 Carpenter Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carpenter Technology has no effect on the direction of Ford i.e., Ford and Carpenter Technology go up and down completely randomly.

Pair Corralation between Ford and Carpenter Technology

Taking into account the 90-day investment horizon Ford is expected to generate 36.03 times less return on investment than Carpenter Technology. But when comparing it to its historical volatility, Ford Motor is 1.26 times less risky than Carpenter Technology. It trades about 0.0 of its potential returns per unit of risk. Carpenter Technology is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,997  in Carpenter Technology on October 7, 2024 and sell it today you would earn a total of  13,003  from holding Carpenter Technology or generate 325.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.8%
Values	Daily Returns

Ford Motor  vs.  Carpenter Technology

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.

Carpenter Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Carpenter Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Carpenter Technology

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

The idea behind Ford Motor and Carpenter Technology 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.