Correlation Between Ford and Bath Body

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Can any of the company-specific risk be diversified away by investing in both Ford and Bath Body 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 Bath Body into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Bath Body Works, you can compare the effects of market volatilities on Ford and Bath Body 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 Bath Body. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Bath Body.

Diversification Opportunities for Ford and Bath Body

-0.11
  Correlation Coefficient

Good diversification

The 3 months correlation between Ford and Bath is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works 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 Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Ford i.e., Ford and Bath Body go up and down completely randomly.

Pair Corralation between Ford and Bath Body

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Bath Body. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.4 times less risky than Bath Body. The stock trades about -0.05 of its potential returns per unit of risk. The Bath Body Works is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,968  in Bath Body Works on September 19, 2024 and sell it today you would earn a total of  1,894  from holding Bath Body Works or generate 47.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.41%
ValuesDaily Returns

Ford Motor  vs.  Bath Body Works

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Bath Body Works 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Bath Body sustained solid returns over the last few months and may actually be approaching a breakup point.

Ford and Bath Body Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Bath Body

The main advantage of trading using opposite Ford and Bath Body positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Bath Body 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 Bath Body will offset losses from the drop in Bath Body's long position.
The idea behind Ford Motor and Bath Body Works 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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