Correlation Between Ford and La-Z-Boy Incorporated

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

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

Diversification Opportunities for Ford and La-Z-Boy Incorporated

-0.03

Correlation Coefficient

Ford  La-Z-Boy Incorporated

Good diversification

The 3 months correlation between Ford and La-Z-Boy is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and La Z Boy Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on La-Z-Boy Incorporated 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 La-Z-Boy Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of La-Z-Boy Incorporated has no effect on the direction of Ford i.e., Ford and La-Z-Boy Incorporated go up and down completely randomly.

Pair Corralation between Ford and La-Z-Boy Incorporated

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the La-Z-Boy Incorporated. In addition to that, Ford is 1.14 times more volatile than La Z Boy Incorporated. It trades about -0.34 of its total potential returns per unit of risk. La Z Boy Incorporated is currently generating about -0.17 per unit of volatility. If you would invest  4,258  in La Z Boy Incorporated on September 28, 2024 and sell it today you would lose (178.00) from holding La Z Boy Incorporated or give up 4.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  La Z Boy Incorporated

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.

La-Z-Boy Incorporated

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in La Z Boy Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, La-Z-Boy Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and La-Z-Boy Incorporated

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

The idea behind Ford Motor and La Z Boy Incorporated 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.