Correlation Between Ford and Central Industrial

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

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

Diversification Opportunities for Ford and Central Industrial

0.28

Correlation Coefficient

Ford  Central Industrial

Modest diversification

The 3 months correlation between Ford and Central is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Central Industrial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Industrial Corp 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 Central Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Industrial Corp has no effect on the direction of Ford i.e., Ford and Central Industrial go up and down completely randomly.

Pair Corralation between Ford and Central Industrial

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Central Industrial. In addition to that, Ford is 2.69 times more volatile than Central Industrial Corp. It trades about -0.01 of its total potential returns per unit of risk. Central Industrial Corp is currently generating about 0.11 per unit of volatility. If you would invest  82.00  in Central Industrial Corp on September 16, 2024 and sell it today you would earn a total of  4.00  from holding Central Industrial Corp or generate 4.88% return on investment over 90 days.

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

Ford Motor  vs.  Central Industrial Corp

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.

Central Industrial Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Industrial Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Central Industrial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ford and Central Industrial

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

The idea behind Ford Motor and Central Industrial Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.