Correlation Between Ford and Transamerica Capital

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

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

Diversification Opportunities for Ford and Transamerica Capital

0.01

Correlation Coefficient

Ford  Transamerica Capital

Significant diversification

The 3 months correlation between Ford and Transamerica is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital 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 Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of Ford i.e., Ford and Transamerica Capital go up and down completely randomly.

Pair Corralation between Ford and Transamerica Capital

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Transamerica Capital. In addition to that, Ford is 1.12 times more volatile than Transamerica Capital Growth. It trades about -0.09 of its total potential returns per unit of risk. Transamerica Capital Growth is currently generating about 0.26 per unit of volatility. If you would invest  936.00  in Transamerica Capital Growth on September 21, 2024 and sell it today you would earn a total of  226.00  from holding Transamerica Capital Growth or generate 24.15% return on investment over 90 days.

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

Ford Motor  vs.  Transamerica Capital Growth

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.

Transamerica Capital

Risk-Adjusted Performance

18 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Capital Growth are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Transamerica Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Transamerica Capital

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

The idea behind Ford Motor and Transamerica Capital Growth 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.