Correlation Between Ford and Spanish Mountain

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

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

Diversification Opportunities for Ford and Spanish Mountain

-0.35

Correlation Coefficient

Ford  Spanish Mountain

Very good diversification

The 3 months correlation between Ford and Spanish is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Spanish Mountain Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spanish Mountain Gold 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 Spanish Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spanish Mountain Gold has no effect on the direction of Ford i.e., Ford and Spanish Mountain go up and down completely randomly.

Pair Corralation between Ford and Spanish Mountain

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.52 times more return on investment than Spanish Mountain. However, Ford Motor is 1.94 times less risky than Spanish Mountain. It trades about 0.02 of its potential returns per unit of risk. Spanish Mountain Gold is currently generating about 0.0 per unit of risk. If you would invest  961.00  in Ford Motor on September 13, 2024 and sell it today you would earn a total of  80.00  from holding Ford Motor or generate 8.32% return on investment over 90 days.

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

Ford Motor  vs.  Spanish Mountain Gold

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.

Spanish Mountain Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spanish Mountain Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Ford and Spanish Mountain

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

The idea behind Ford Motor and Spanish Mountain Gold 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.