Correlation Between Ford and Flex
Can any of the company-specific risk be diversified away by investing in both Ford and Flex 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 Flex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Flex, you can compare the effects of market volatilities on Ford and Flex 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 Flex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Flex.
Diversification Opportunities for Ford and Flex
Very weak diversification
The 3 months correlation between Ford and Flex is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Flex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flex 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 Flex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flex has no effect on the direction of Ford i.e., Ford and Flex go up and down completely randomly.
Pair Corralation between Ford and Flex
Taking into account the 90-day investment horizon Ford is expected to generate 7.83 times less return on investment than Flex. But when comparing it to its historical volatility, Ford Motor is 2.22 times less risky than Flex. It trades about 0.03 of its potential returns per unit of risk. Flex is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,182 in Flex on August 27, 2024 and sell it today you would earn a total of 2,948 from holding Flex or generate 249.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Flex
Performance |
| Timeline |
| Ford Motor |
| Flex |
Ford and Flex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Flex
The main advantage of trading using opposite Ford and Flex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Flex 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 Flex will offset losses from the drop in Flex's long position.The idea behind Ford Motor and Flex 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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