Correlation Between Ford and Payden Equity

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

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

Diversification Opportunities for Ford and Payden Equity

0.59

Correlation Coefficient

Ford  Payden Equity

Very weak diversification

The 3 months correlation between Ford and Payden is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Payden Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Equity Income 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 Payden Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Equity Income has no effect on the direction of Ford i.e., Ford and Payden Equity go up and down completely randomly.

Pair Corralation between Ford and Payden Equity

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Payden Equity. In addition to that, Ford is 3.4 times more volatile than Payden Equity Income. It trades about -0.01 of its total potential returns per unit of risk. Payden Equity Income is currently generating about 0.09 per unit of volatility. If you would invest  1,876  in Payden Equity Income on September 14, 2024 and sell it today you would earn a total of  61.00  from holding Payden Equity Income or generate 3.25% 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.  Payden Equity Income

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.

Payden Equity Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Equity Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Payden Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Payden Equity

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

The idea behind Ford Motor and Payden Equity Income 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.