Correlation Between Ford and CENTRICA ADR

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

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

Diversification Opportunities for Ford and CENTRICA ADR

0.03

Correlation Coefficient

Ford  CENTRICA ADR

Significant diversification

The 3 months correlation between Ford and CENTRICA is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CENTRICA ADR NEW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CENTRICA ADR NEW 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 CENTRICA ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CENTRICA ADR NEW has no effect on the direction of Ford i.e., Ford and CENTRICA ADR go up and down completely randomly.

Pair Corralation between Ford and CENTRICA ADR

Taking into account the 90-day investment horizon Ford is expected to generate 4.45 times less return on investment than CENTRICA ADR. But when comparing it to its historical volatility, Ford Motor is 1.04 times less risky than CENTRICA ADR. It trades about 0.01 of its potential returns per unit of risk. CENTRICA ADR NEW is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  389.00  in CENTRICA ADR NEW on September 20, 2024 and sell it today you would earn a total of  191.00  from holding CENTRICA ADR NEW or generate 49.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.02%
Values	Daily Returns

Ford Motor  vs.  CENTRICA ADR NEW

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CENTRICA ADR NEW

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CENTRICA ADR NEW are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CENTRICA ADR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and CENTRICA ADR

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

The idea behind Ford Motor and CENTRICA ADR NEW 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.