Correlation Between Ford and AETNA

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

By analyzing existing cross correlation between Ford Motor and AETNA INC 7625, you can compare the effects of market volatilities on Ford and AETNA 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 AETNA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and AETNA.

Diversification Opportunities for Ford and AETNA

-0.09

Correlation Coefficient

Ford  AETNA

Good diversification

The 3 months correlation between Ford and AETNA is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and AETNA INC 7625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AETNA INC 7625 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 AETNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AETNA INC 7625 has no effect on the direction of Ford i.e., Ford and AETNA go up and down completely randomly.

Pair Corralation between Ford and AETNA

Taking into account the 90-day investment horizon Ford is expected to generate 1.34 times less return on investment than AETNA. In addition to that, Ford is 2.09 times more volatile than AETNA INC 7625. It trades about 0.03 of its total potential returns per unit of risk. AETNA INC 7625 is currently generating about 0.09 per unit of volatility. If you would invest  10,603  in AETNA INC 7625 on September 3, 2024 and sell it today you would earn a total of  343.00  from holding AETNA INC 7625 or generate 3.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	62.5%
Values	Daily Returns

Ford Motor  vs.  AETNA INC 7625

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) 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.

AETNA INC 7625

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AETNA INC 7625 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, AETNA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and AETNA

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

The idea behind Ford Motor and AETNA INC 7625 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.