Correlation Between Ford and LOral SA

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

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

Diversification Opportunities for Ford and LOral SA

-0.27

Correlation Coefficient

Ford  LOral SA

Very good diversification

The 3 months correlation between Ford and LOral is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOral SA 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 LOral SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOral SA has no effect on the direction of Ford i.e., Ford and LOral SA go up and down completely randomly.

Pair Corralation between Ford and LOral SA

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the LOral SA. In addition to that, Ford is 1.17 times more volatile than LOral SA. It trades about -0.5 of its total potential returns per unit of risk. LOral SA is currently generating about 0.06 per unit of volatility. If you would invest  33,310  in LOral SA on September 24, 2024 and sell it today you would earn a total of  460.00  from holding LOral SA or generate 1.38% return on investment over 90 days.

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

Ford Motor  vs.  LOral SA

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

LOral SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOral SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ford and LOral SA

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

The idea behind Ford Motor and LOral SA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.