Correlation Between Ford and The Arbitrage

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

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

Diversification Opportunities for Ford and The Arbitrage

0.3

Correlation Coefficient

Ford  The Arbitrage

Weak diversification

The 3 months correlation between Ford and The is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and The Arbitrage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Arbitrage 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 The Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Arbitrage has no effect on the direction of Ford i.e., Ford and The Arbitrage go up and down completely randomly.

Pair Corralation between Ford and The Arbitrage

Taking into account the 90-day investment horizon Ford Motor is expected to generate 8.29 times more return on investment than The Arbitrage. However, Ford is 8.29 times more volatile than The Arbitrage Fund. It trades about 0.01 of its potential returns per unit of risk. The Arbitrage Fund is currently generating about 0.03 per unit of risk. If you would invest  1,138  in Ford Motor on September 2, 2024 and sell it today you would lose (25.00) from holding Ford Motor or give up 2.2% of portfolio value over 90 days.

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

Ford Motor  vs.  The Arbitrage Fund

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.

The Arbitrage

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, The Arbitrage 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 The Arbitrage

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

The idea behind Ford Motor and The Arbitrage Fund 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .