Correlation Between Ford and ETFS Morningstar

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

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

Diversification Opportunities for Ford and ETFS Morningstar

0.38

Correlation Coefficient

Ford  ETFS Morningstar

Weak diversification

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

Pair Corralation between Ford and ETFS Morningstar

Taking into account the 90-day investment horizon Ford is expected to generate 2.66 times less return on investment than ETFS Morningstar. In addition to that, Ford is 2.14 times more volatile than ETFS Morningstar Global. It trades about 0.02 of its total potential returns per unit of risk. ETFS Morningstar Global is currently generating about 0.11 per unit of volatility. If you would invest  6,534  in ETFS Morningstar Global on September 14, 2024 and sell it today you would earn a total of  5,041  from holding ETFS Morningstar Global or generate 77.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

Ford Motor  vs.  ETFS Morningstar Global

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.

ETFS Morningstar Global

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Morningstar Global are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETFS Morningstar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and ETFS Morningstar

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

The idea behind Ford Motor and ETFS Morningstar Global 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.