Correlation Between Ford and Brookside Energy

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

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

Diversification Opportunities for Ford and Brookside Energy

-0.07

Correlation Coefficient

Ford  Brookside Energy

Good diversification

The 3 months correlation between Ford and Brookside is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Brookside Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookside Energy 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 Brookside Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookside Energy has no effect on the direction of Ford i.e., Ford and Brookside Energy go up and down completely randomly.

Pair Corralation between Ford and Brookside Energy

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Brookside Energy. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 3.77 times less risky than Brookside Energy. The stock trades about -0.23 of its potential returns per unit of risk. The Brookside Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Brookside Energy on September 22, 2024 and sell it today you would lose (3.00) from holding Brookside Energy or give up 8.33% of portfolio value over 90 days.

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

Ford Motor  vs.  Brookside Energy

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.

Brookside Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookside Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Brookside Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Brookside Energy

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

The idea behind Ford Motor and Brookside Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.