Correlation Between Ford and Safe

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

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

Diversification Opportunities for Ford and Safe

0.38

Correlation Coefficient

Ford  Safe

Weak diversification

The 3 months correlation between Ford and Safe is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Safe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safe 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 Safe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safe has no effect on the direction of Ford i.e., Ford and Safe go up and down completely randomly.

Pair Corralation between Ford and Safe

Taking into account the 90-day investment horizon Ford is expected to generate 15.37 times less return on investment than Safe. But when comparing it to its historical volatility, Ford Motor is 3.9 times less risky than Safe. It trades about 0.03 of its potential returns per unit of risk. Safe is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  77.00  in Safe on September 1, 2024 and sell it today you would earn a total of  44.00  from holding Safe or generate 57.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.92%
Values	Daily Returns

Ford Motor  vs.  Safe

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.

Safe

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Safe are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Safe exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Safe

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

The idea behind Ford Motor and Safe 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.