Correlation Between Ford and BMO Short

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

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

Diversification Opportunities for Ford and BMO Short

-0.19

Correlation Coefficient

Ford  BMO Short

Good diversification

The 3 months correlation between Ford and BMO is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BMO Short Provincial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Provincial 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 BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Provincial has no effect on the direction of Ford i.e., Ford and BMO Short go up and down completely randomly.

Pair Corralation between Ford and BMO Short

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BMO Short. In addition to that, Ford is 13.89 times more volatile than BMO Short Provincial. It trades about 0.0 of its total potential returns per unit of risk. BMO Short Provincial is currently generating about 0.13 per unit of volatility. If you would invest  1,172  in BMO Short Provincial on September 13, 2024 and sell it today you would earn a total of  64.00  from holding BMO Short Provincial or generate 5.46% return on investment over 90 days.

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

Ford Motor  vs.  BMO Short Provincial

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.

BMO Short Provincial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Provincial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Short is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and BMO Short

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

The idea behind Ford Motor and BMO Short Provincial 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.