Correlation Between Ford and Gold Rain

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

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

Diversification Opportunities for Ford and Gold Rain

-0.44

Correlation Coefficient

Ford  Gold Rain

Very good diversification

The 3 months correlation between Ford and Gold is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Gold Rain Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Rain Enterprises 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 Gold Rain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Rain Enterprises has no effect on the direction of Ford i.e., Ford and Gold Rain go up and down completely randomly.

Pair Corralation between Ford and Gold Rain

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Gold Rain. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.02 times less risky than Gold Rain. The stock trades about -0.02 of its potential returns per unit of risk. The Gold Rain Enterprises is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,140  in Gold Rain Enterprises on September 30, 2024 and sell it today you would lose (140.00) from holding Gold Rain Enterprises or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Ford Motor  vs.  Gold Rain Enterprises

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.

Gold Rain Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Rain Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Gold Rain 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 Gold Rain

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

The idea behind Ford Motor and Gold Rain Enterprises 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.