Correlation Between Bayerische Motoren and Ford

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

By analyzing existing cross correlation between Bayerische Motoren Werke and Ford Motor, you can compare the effects of market volatilities on Bayerische Motoren and Ford 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 Bayerische Motoren with a short position of Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayerische Motoren and Ford.

Diversification Opportunities for Bayerische Motoren and Ford

-0.3

Correlation Coefficient

Bayerische Motoren  Ford

Very good diversification

The 3 months correlation between Bayerische and Ford is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Bayerische Motoren 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 Bayerische Motoren Werke are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Bayerische Motoren i.e., Bayerische Motoren and Ford go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Ford

Assuming the 90 days horizon Bayerische Motoren Werke is expected to generate 0.04 times more return on investment than Ford. However, Bayerische Motoren Werke is 25.62 times less risky than Ford. It trades about -0.21 of its potential returns per unit of risk. Ford Motor is currently generating about -0.18 per unit of risk. If you would invest  6,800  in Bayerische Motoren Werke on September 15, 2024 and sell it today you would lose (20.00) from holding Bayerische Motoren Werke or give up 0.29% of portfolio value over 90 days.

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

Bayerische Motoren Werke  vs.  Ford Motor

Bayerische Motoren Werke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayerische Motoren Werke has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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.

Pair Trading with Bayerische Motoren and Ford

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

The idea behind Bayerische Motoren Werke and Ford Motor 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.