Correlation Between Ford and TES Co

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

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

Diversification Opportunities for Ford and TES Co

-0.4

Correlation Coefficient

Ford  TES Co

Very good diversification

The 3 months correlation between Ford and TES is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and TES Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TES Co 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 TES Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TES Co has no effect on the direction of Ford i.e., Ford and TES Co go up and down completely randomly.

Pair Corralation between Ford and TES Co

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the TES Co. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.55 times less risky than TES Co. The stock trades about -0.19 of its potential returns per unit of risk. The TES Co is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,441,000  in TES Co on September 21, 2024 and sell it today you would earn a total of  159,000  from holding TES Co or generate 11.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Ford Motor  vs.  TES Co

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

TES Co

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ford and TES Co

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

The idea behind Ford Motor and TES Co 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.