Correlation Between Ford and LENNAR

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

By analyzing existing cross correlation between Ford Motor and LENNAR P 525, you can compare the effects of market volatilities on Ford and LENNAR 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 LENNAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and LENNAR.

Diversification Opportunities for Ford and LENNAR

0.09

Correlation Coefficient

Ford  LENNAR

Significant diversification

The 3 months correlation between Ford and LENNAR is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LENNAR P 525 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LENNAR P 525 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 LENNAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LENNAR P 525 has no effect on the direction of Ford i.e., Ford and LENNAR go up and down completely randomly.

Pair Corralation between Ford and LENNAR

Taking into account the 90-day investment horizon Ford Motor is expected to generate 4.78 times more return on investment than LENNAR. However, Ford is 4.78 times more volatile than LENNAR P 525. It trades about 0.01 of its potential returns per unit of risk. LENNAR P 525 is currently generating about -0.01 per unit of risk. If you would invest  988.00  in Ford Motor on September 24, 2024 and sell it today you would earn a total of  0.00  from holding Ford Motor or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.17%
Values	Daily Returns

Ford Motor  vs.  LENNAR P 525

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.

LENNAR P 525

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LENNAR P 525 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LENNAR is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and LENNAR

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

The idea behind Ford Motor and LENNAR P 525 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.