Correlation Between Ford and Sentinel Balanced

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

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

Diversification Opportunities for Ford and Sentinel Balanced

0.29

Correlation Coefficient

Ford  Sentinel Balanced

Modest diversification

The 3 months correlation between Ford and Sentinel is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Sentinel Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Balanced 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 Sentinel Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Balanced has no effect on the direction of Ford i.e., Ford and Sentinel Balanced go up and down completely randomly.

Pair Corralation between Ford and Sentinel Balanced

Taking into account the 90-day investment horizon Ford is expected to generate 1.94 times less return on investment than Sentinel Balanced. In addition to that, Ford is 4.32 times more volatile than Sentinel Balanced Fund. It trades about 0.01 of its total potential returns per unit of risk. Sentinel Balanced Fund is currently generating about 0.11 per unit of volatility. If you would invest  2,140  in Sentinel Balanced Fund on September 19, 2024 and sell it today you would earn a total of  716.00  from holding Sentinel Balanced Fund or generate 33.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Ford Motor  vs.  Sentinel Balanced Fund

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.

Sentinel Balanced

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Balanced Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Sentinel Balanced 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 Sentinel Balanced

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

The idea behind Ford Motor and Sentinel Balanced 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.