Correlation Between Ford and Leading Edge

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

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

Diversification Opportunities for Ford and Leading Edge

-0.41

Correlation Coefficient

Ford  Leading Edge

Very good diversification

The 3 months correlation between Ford and Leading is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Leading Edge Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leading Edge Materials 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 Leading Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leading Edge Materials has no effect on the direction of Ford i.e., Ford and Leading Edge go up and down completely randomly.

Pair Corralation between Ford and Leading Edge

Taking into account the 90-day investment horizon Ford is expected to generate 2.7 times less return on investment than Leading Edge. But when comparing it to its historical volatility, Ford Motor is 3.04 times less risky than Leading Edge. It trades about 0.02 of its potential returns per unit of risk. Leading Edge Materials is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Leading Edge Materials on September 14, 2024 and sell it today you would lose (5.10) from holding Leading Edge Materials or give up 42.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Ford Motor  vs.  Leading Edge Materials

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

Leading Edge Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leading Edge Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Leading Edge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Leading Edge

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

The idea behind Ford Motor and Leading Edge Materials 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..