Correlation Between Ford and Franklin Mutual

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

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

Diversification Opportunities for Ford and Franklin Mutual

0.76

Correlation Coefficient

Ford  Franklin Mutual

Poor diversification

The 3 months correlation between Ford and Franklin is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Franklin Mutual Beacon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Mutual Beacon 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 Franklin Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Mutual Beacon has no effect on the direction of Ford i.e., Ford and Franklin Mutual go up and down completely randomly.

Pair Corralation between Ford and Franklin Mutual

Taking into account the 90-day investment horizon Ford is expected to generate 1.03 times less return on investment than Franklin Mutual. In addition to that, Ford is 3.46 times more volatile than Franklin Mutual Beacon. It trades about 0.02 of its total potential returns per unit of risk. Franklin Mutual Beacon is currently generating about 0.07 per unit of volatility. If you would invest  1,710  in Franklin Mutual Beacon on September 3, 2024 and sell it today you would earn a total of  46.00  from holding Franklin Mutual Beacon or generate 2.69% return on investment over 90 days.

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

Ford Motor  vs.  Franklin Mutual Beacon

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) 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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Franklin Mutual Beacon

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Mutual Beacon are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Franklin Mutual 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 Franklin Mutual

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

The idea behind Ford Motor and Franklin Mutual Beacon 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.