Correlation Between Ford and President Chain

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

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

Diversification Opportunities for Ford and President Chain

-0.41

Correlation Coefficient

Ford  President Chain

Very good diversification

The 3 months correlation between Ford and President is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and President Chain Store in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on President Chain Store 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 President Chain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of President Chain Store has no effect on the direction of Ford i.e., Ford and President Chain go up and down completely randomly.

Pair Corralation between Ford and President Chain

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.26 times more return on investment than President Chain. However, Ford is 1.26 times more volatile than President Chain Store. It trades about 0.17 of its potential returns per unit of risk. President Chain Store is currently generating about -0.24 per unit of risk. If you would invest  1,033  in Ford Motor on August 31, 2024 and sell it today you would earn a total of  77.00  from holding Ford Motor or generate 7.45% return on investment over 90 days.

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

Ford Motor  vs.  President Chain Store

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.

President Chain Store

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days President Chain Store has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, President Chain is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and President Chain

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

The idea behind Ford Motor and President Chain Store 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.