Correlation Between Ford and Xtrackers

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

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

Diversification Opportunities for Ford and Xtrackers

0.07

Correlation Coefficient

Ford  Xtrackers

Significant diversification

The 3 months correlation between Ford and Xtrackers is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Xtrackers SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP has no effect on the direction of Ford i.e., Ford and Xtrackers go up and down completely randomly.

Pair Corralation between Ford and Xtrackers

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Xtrackers. In addition to that, Ford is 1.35 times more volatile than Xtrackers SP. It trades about -0.03 of its total potential returns per unit of risk. Xtrackers SP is currently generating about 0.15 per unit of volatility. If you would invest  20,040  in Xtrackers SP on September 26, 2024 and sell it today you would earn a total of  2,925  from holding Xtrackers SP or generate 14.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Ford Motor  vs.  Xtrackers SP

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.

Xtrackers SP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Xtrackers

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

The idea behind Ford Motor and Xtrackers SP 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.