Correlation Between Ford and Galway Metals

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

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

Diversification Opportunities for Ford and Galway Metals

-0.41

Correlation Coefficient

Ford  Galway Metals

Very good diversification

The 3 months correlation between Ford and Galway is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Galway Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galway Metals 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 Galway Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galway Metals has no effect on the direction of Ford i.e., Ford and Galway Metals go up and down completely randomly.

Pair Corralation between Ford and Galway Metals

Taking into account the 90-day investment horizon Ford is expected to generate 2.52 times less return on investment than Galway Metals. But when comparing it to its historical volatility, Ford Motor is 2.1 times less risky than Galway Metals. It trades about 0.01 of its potential returns per unit of risk. Galway Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  66.00  in Galway Metals on September 3, 2024 and sell it today you would lose (17.00) from holding Galway Metals or give up 25.76% 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.  Galway Metals

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Galway Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Galway Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Galway Metals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and Galway Metals

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

The idea behind Ford Motor and Galway Metals 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.