Correlation Between Ford and Eramet SA

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

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

Diversification Opportunities for Ford and Eramet SA

-0.48

Correlation Coefficient

Ford  Eramet SA

Very good diversification

The 3 months correlation between Ford and Eramet is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Eramet SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA ADR 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 Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA ADR has no effect on the direction of Ford i.e., Ford and Eramet SA go up and down completely randomly.

Pair Corralation between Ford and Eramet SA

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.53 times more return on investment than Eramet SA. However, Ford Motor is 1.87 times less risky than Eramet SA. It trades about 0.0 of its potential returns per unit of risk. Eramet SA ADR is currently generating about -0.04 per unit of risk. If you would invest  1,048  in Ford Motor on September 12, 2024 and sell it today you would lose (7.00) from holding Ford Motor or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Eramet SA ADR

Ford Motor

Risk-Adjusted Performance

0 of 100

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.

Eramet SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ford and Eramet SA

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

The idea behind Ford Motor and Eramet SA ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.