Correlation Between Ford and American Beacon

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Can any of the company-specific risk be diversified away by investing in both Ford and American Beacon 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 American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and American Beacon Ark, you can compare the effects of market volatilities on Ford and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and American Beacon.

Diversification Opportunities for Ford and American Beacon

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ford and American is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ark 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Ark has no effect on the direction of Ford i.e., Ford and American Beacon go up and down completely randomly.

Pair Corralation between Ford and American Beacon

Taking into account the 90-day investment horizon Ford is expected to generate 2.02 times less return on investment than American Beacon. But when comparing it to its historical volatility, Ford Motor is 1.47 times less risky than American Beacon. It trades about 0.19 of its potential returns per unit of risk. American Beacon Ark is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,244  in American Beacon Ark on August 30, 2024 and sell it today you would earn a total of  220.00  from holding American Beacon Ark or generate 17.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.65%
ValuesDaily Returns

Ford Motor  vs.  American Beacon Ark

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.
American Beacon Ark 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Ark are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

Ford and American Beacon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and American Beacon

The main advantage of trading using opposite Ford and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.
The idea behind Ford Motor and American Beacon Ark 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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