Correlation Between Ford and American High-income

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

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

Diversification Opportunities for Ford and American High-income

-0.21

Correlation Coefficient

Ford  American High-income

Very good diversification

The 3 months correlation between Ford and American is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American High Income Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American High Income 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 American High-income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American High Income has no effect on the direction of Ford i.e., Ford and American High-income go up and down completely randomly.

Pair Corralation between Ford and American High-income

Taking into account the 90-day investment horizon Ford Motor is expected to generate 7.75 times more return on investment than American High-income. However, Ford is 7.75 times more volatile than American High Income Municipal. It trades about 0.02 of its potential returns per unit of risk. American High Income Municipal is currently generating about 0.08 per unit of risk. If you would invest  1,080  in Ford Motor on September 4, 2024 and sell it today you would earn a total of  18.00  from holding Ford Motor or generate 1.67% return on investment over 90 days.

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

Ford Motor  vs.  American High Income Municipal

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

American High Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American High Income Municipal are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American High-income 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 American High-income

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

The idea behind Ford Motor and American High Income Municipal 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.