Correlation Between Energy Focu and Ford

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

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

Diversification Opportunities for Energy Focu and Ford

-0.4

Correlation Coefficient

Energy Focu  Ford

Very good diversification

The 3 months correlation between Energy and Ford is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Energy Focu and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Energy Focu 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 Energy Focu 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 Energy Focu i.e., Energy Focu and Ford go up and down completely randomly.

Pair Corralation between Energy Focu and Ford

Given the investment horizon of 90 days Energy Focu is expected to under-perform the Ford. In addition to that, Energy Focu is 9.57 times more volatile than Ford Motor. It trades about -0.02 of its total potential returns per unit of risk. Ford Motor is currently generating about -0.15 per unit of volatility. If you would invest  2,399  in Ford Motor on September 23, 2024 and sell it today you would lose (84.00) from holding Ford Motor or give up 3.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Energy Focu  vs.  Ford Motor

Energy Focu

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Focu are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Energy Focu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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. In spite of rather sound basic indicators, Ford is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Energy Focu and Ford

The main advantage of trading using opposite Energy Focu and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Focu 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 Energy Focu 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.