Correlation Between Ford and WisdomTree Aluminium

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

By analyzing existing cross correlation between Ford Motor and WisdomTree Aluminium 2x, you can compare the effects of market volatilities on Ford and WisdomTree Aluminium 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 WisdomTree Aluminium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and WisdomTree Aluminium.

Diversification Opportunities for Ford and WisdomTree Aluminium

0.07

Correlation Coefficient

Ford  WisdomTree Aluminium

Significant diversification

The 3 months correlation between Ford and WisdomTree is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and WisdomTree Aluminium 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Aluminium 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 WisdomTree Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Aluminium has no effect on the direction of Ford i.e., Ford and WisdomTree Aluminium go up and down completely randomly.

Pair Corralation between Ford and WisdomTree Aluminium

Taking into account the 90-day investment horizon Ford is expected to generate 3.63 times less return on investment than WisdomTree Aluminium. But when comparing it to its historical volatility, Ford Motor is 1.54 times less risky than WisdomTree Aluminium. It trades about 0.03 of its potential returns per unit of risk. WisdomTree Aluminium 2x is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  192.00  in WisdomTree Aluminium 2x on September 3, 2024 and sell it today you would earn a total of  24.00  from holding WisdomTree Aluminium 2x or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Ford Motor  vs.  WisdomTree Aluminium 2x

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.

WisdomTree Aluminium

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Aluminium 2x are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Aluminium unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and WisdomTree Aluminium

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

The idea behind Ford Motor and WisdomTree Aluminium 2x 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.