Correlation Between Ford and Farmhouse

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

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

Diversification Opportunities for Ford and Farmhouse

0.61

Correlation Coefficient

Ford  Farmhouse

Poor diversification

The 3 months correlation between Ford and Farmhouse is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Farmhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmhouse 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 Farmhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmhouse has no effect on the direction of Ford i.e., Ford and Farmhouse go up and down completely randomly.

Pair Corralation between Ford and Farmhouse

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Farmhouse. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 8.65 times less risky than Farmhouse. The stock trades about -0.04 of its potential returns per unit of risk. The Farmhouse is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Farmhouse on October 1, 2024 and sell it today you would lose (9.03) from holding Farmhouse or give up 56.44% of portfolio value over 90 days.

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

Ford Motor  vs.  Farmhouse

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.

Farmhouse

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmhouse has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Farmhouse is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and Farmhouse

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

The idea behind Ford Motor and Farmhouse 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.