Correlation Between Ford and Environmental Control

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

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

Diversification Opportunities for Ford and Environmental Control

0.02

Correlation Coefficient

Ford  Environmental Control

Significant diversification

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

Pair Corralation between Ford and Environmental Control

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Environmental Control. In addition to that, Ford is 5.36 times more volatile than Environmental Control Corp. It trades about -0.22 of its total potential returns per unit of risk. Environmental Control Corp is currently generating about -0.23 per unit of volatility. If you would invest  0.81  in Environmental Control Corp on October 8, 2024 and sell it today you would lose (0.01) from holding Environmental Control Corp or give up 1.23% of portfolio value over 90 days.

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

Ford Motor  vs.  Environmental Control Corp

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.

Environmental Control

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Environmental Control Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Environmental Control displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Environmental Control

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

The idea behind Ford Motor and Environmental Control Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.