Correlation Between Ford and Best Buy

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

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

Diversification Opportunities for Ford and Best Buy

-0.39

Correlation Coefficient

Ford  Best Buy

Very good diversification

The 3 months correlation between Ford and Best is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Ford i.e., Ford and Best Buy go up and down completely randomly.

Pair Corralation between Ford and Best Buy

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Best Buy. In addition to that, Ford is 1.55 times more volatile than Best Buy Co. It trades about -0.05 of its total potential returns per unit of risk. Best Buy Co is currently generating about -0.01 per unit of volatility. If you would invest  53,500  in Best Buy Co on September 19, 2024 and sell it today you would lose (876.00) from holding Best Buy Co or give up 1.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Ford Motor  vs.  Best Buy Co

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.

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Best Buy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Best Buy

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

The idea behind Ford Motor and Best Buy Co 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.