Correlation Between Ford and Vale SA

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

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

Diversification Opportunities for Ford and Vale SA

0.4

Correlation Coefficient

Ford  Vale SA

Very weak diversification

The 3 months correlation between Ford and Vale is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Ford i.e., Ford and Vale SA go up and down completely randomly.

Pair Corralation between Ford and Vale SA

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.98 times more return on investment than Vale SA. However, Ford Motor is 1.02 times less risky than Vale SA. It trades about -0.04 of its potential returns per unit of risk. Vale SA is currently generating about -0.19 per unit of risk. If you would invest  1,064  in Ford Motor on September 27, 2024 and sell it today you would lose (62.00) from holding Ford Motor or give up 5.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.06%
Values	Daily Returns

Ford Motor  vs.  Vale SA

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Ford and Vale SA

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

The idea behind Ford Motor and Vale SA 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .