Correlation Between Ford and Rand Worldwide

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

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

Diversification Opportunities for Ford and Rand Worldwide

0.06

Correlation Coefficient

Ford  Rand Worldwide

Significant diversification

The 3 months correlation between Ford and Rand is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Rand Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rand Worldwide 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 Rand Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rand Worldwide has no effect on the direction of Ford i.e., Ford and Rand Worldwide go up and down completely randomly.

Pair Corralation between Ford and Rand Worldwide

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Rand Worldwide. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.47 times less risky than Rand Worldwide. The stock trades about -0.18 of its potential returns per unit of risk. The Rand Worldwide is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,100  in Rand Worldwide on September 13, 2024 and sell it today you would lose (1.00) from holding Rand Worldwide or give up 0.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  Rand Worldwide

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.

Rand Worldwide

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rand Worldwide are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Rand Worldwide may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Rand Worldwide

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

The idea behind Ford Motor and Rand Worldwide 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.