Correlation Between Ford and Kraft Bank

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

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

Diversification Opportunities for Ford and Kraft Bank

-0.39

Correlation Coefficient

Ford  Kraft Bank

Very good diversification

The 3 months correlation between Ford and Kraft is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Kraft Bank Asa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kraft Bank Asa 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 Kraft Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kraft Bank Asa has no effect on the direction of Ford i.e., Ford and Kraft Bank go up and down completely randomly.

Pair Corralation between Ford and Kraft Bank

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Kraft Bank. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.67 times less risky than Kraft Bank. The stock trades about -0.21 of its potential returns per unit of risk. The Kraft Bank Asa is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  900.00  in Kraft Bank Asa on September 12, 2024 and sell it today you would lose (30.00) from holding Kraft Bank Asa or give up 3.33% of portfolio value over 90 days.

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

Ford Motor  vs.  Kraft Bank Asa

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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.

Kraft Bank Asa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kraft Bank Asa has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Kraft Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ford and Kraft Bank

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

The idea behind Ford Motor and Kraft Bank Asa 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.