Correlation Between Ford and Aviation Links

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

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

Diversification Opportunities for Ford and Aviation Links

-0.33

Correlation Coefficient

Ford  Aviation Links

Very good diversification

The 3 months correlation between Ford and Aviation is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Aviation Links in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aviation Links 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 Aviation Links. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aviation Links has no effect on the direction of Ford i.e., Ford and Aviation Links go up and down completely randomly.

Pair Corralation between Ford and Aviation Links

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Aviation Links. In addition to that, Ford is 1.11 times more volatile than Aviation Links. It trades about -0.03 of its total potential returns per unit of risk. Aviation Links is currently generating about 0.27 per unit of volatility. If you would invest  133,700  in Aviation Links on September 27, 2024 and sell it today you would earn a total of  31,100  from holding Aviation Links or generate 23.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.31%
Values	Daily Returns

Ford Motor  vs.  Aviation Links

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.

Aviation Links

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aviation Links are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aviation Links sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Aviation Links

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

The idea behind Ford Motor and Aviation Links 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.