Correlation Between Ford and Blue Chip

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

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

Diversification Opportunities for Ford and Blue Chip

0.57

Correlation Coefficient

Ford  Blue Chip

Very weak diversification

The 3 months correlation between Ford and Blue is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund 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 Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of Ford i.e., Ford and Blue Chip go up and down completely randomly.

Pair Corralation between Ford and Blue Chip

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Blue Chip. In addition to that, Ford is 2.58 times more volatile than Blue Chip Fund. It trades about 0.0 of its total potential returns per unit of risk. Blue Chip Fund is currently generating about 0.13 per unit of volatility. If you would invest  3,279  in Blue Chip Fund on August 31, 2024 and sell it today you would earn a total of  1,660  from holding Blue Chip Fund or generate 50.63% return on investment over 90 days.

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

Ford Motor  vs.  Blue Chip Fund

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

Blue Chip Fund

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Chip Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Blue Chip may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ford and Blue Chip

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

The idea behind Ford Motor and Blue Chip Fund 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.