Correlation Between Ford and BMO MSCI

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

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

Diversification Opportunities for Ford and BMO MSCI

0.01

Correlation Coefficient

Ford  BMO MSCI

Significant diversification

The 3 months correlation between Ford and BMO is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE 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 BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI EAFE has no effect on the direction of Ford i.e., Ford and BMO MSCI go up and down completely randomly.

Pair Corralation between Ford and BMO MSCI

Taking into account the 90-day investment horizon Ford Motor is expected to generate 3.61 times more return on investment than BMO MSCI. However, Ford is 3.61 times more volatile than BMO MSCI EAFE. It trades about 0.23 of its potential returns per unit of risk. BMO MSCI EAFE is currently generating about 0.09 per unit of risk. If you would invest  1,015  in Ford Motor on September 1, 2024 and sell it today you would earn a total of  98.00  from holding Ford Motor or generate 9.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  BMO MSCI EAFE

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

BMO MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, BMO MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and BMO MSCI

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

The idea behind Ford Motor and BMO MSCI EAFE 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.