Correlation Between Ford and Icon Long/short

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

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

Diversification Opportunities for Ford and Icon Long/short

0.63

Correlation Coefficient

Ford  Icon Long/short

Poor diversification

The 3 months correlation between Ford and Icon is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Icon Longshort Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Long/short 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 Icon Long/short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Long/short has no effect on the direction of Ford i.e., Ford and Icon Long/short go up and down completely randomly.

Pair Corralation between Ford and Icon Long/short

Taking into account the 90-day investment horizon Ford is expected to generate 3.67 times less return on investment than Icon Long/short. In addition to that, Ford is 1.78 times more volatile than Icon Longshort Fund. It trades about 0.03 of its total potential returns per unit of risk. Icon Longshort Fund is currently generating about 0.19 per unit of volatility. If you would invest  2,567  in Icon Longshort Fund on August 31, 2024 and sell it today you would earn a total of  367.00  from holding Icon Longshort Fund or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Icon Longshort Fund

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Icon Long/short

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Icon Longshort Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Icon Long/short showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Icon Long/short

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

The idea behind Ford Motor and Icon Longshort Fund 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.