Correlation Between DR Horton and Ford

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

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

Diversification Opportunities for DR Horton and Ford

-0.5

Correlation Coefficient

DR Horton  Ford

Very good diversification

The 3 months correlation between D1HI34 and Ford is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding DR Horton and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and DR Horton 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 DR Horton 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 DR Horton i.e., DR Horton and Ford go up and down completely randomly.

Pair Corralation between DR Horton and Ford

Assuming the 90 days trading horizon DR Horton is expected to under-perform the Ford. In addition to that, DR Horton is 1.08 times more volatile than Ford Motor. It trades about -0.03 of its total potential returns per unit of risk. Ford Motor is currently generating about 0.09 per unit of volatility. If you would invest  6,116  in Ford Motor on September 3, 2024 and sell it today you would earn a total of  582.00  from holding Ford Motor or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

DR Horton  vs.  Ford Motor

DR Horton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, DR Horton is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ford Motor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with DR Horton and Ford

The main advantage of trading using opposite DR Horton and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DR Horton 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 DR Horton 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.