Correlation Between Ford and Hillcrest Energy

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

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

Diversification Opportunities for Ford and Hillcrest Energy

0.33

Correlation Coefficient

Ford  Hillcrest Energy

Weak diversification

The 3 months correlation between Ford and Hillcrest is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Hillcrest Energy Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hillcrest Energy Tec 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 Hillcrest Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hillcrest Energy Tec has no effect on the direction of Ford i.e., Ford and Hillcrest Energy go up and down completely randomly.

Pair Corralation between Ford and Hillcrest Energy

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.28 times more return on investment than Hillcrest Energy. However, Ford Motor is 3.57 times less risky than Hillcrest Energy. It trades about -0.02 of its potential returns per unit of risk. Hillcrest Energy Technologies is currently generating about -0.12 per unit of risk. If you would invest  1,042  in Ford Motor on September 28, 2024 and sell it today you would lose (40.00) from holding Ford Motor or give up 3.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Ford Motor  vs.  Hillcrest Energy Technologies

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.

Hillcrest Energy Tec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hillcrest Energy Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ford and Hillcrest Energy

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

The idea behind Ford Motor and Hillcrest Energy Technologies 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 Transaction History module to view history of all your transactions and understand their impact on performance.