Correlation Between Ford and Amazon

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

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

Diversification Opportunities for Ford and Amazon

0.86

Correlation Coefficient

Ford  Amazon

Very poor diversification

The 3 months correlation between Ford and Amazon is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Ford i.e., Ford and Amazon go up and down completely randomly.

Pair Corralation between Ford and Amazon

Taking into account the 90-day investment horizon Ford is expected to generate 2.87 times less return on investment than Amazon. In addition to that, Ford is 1.42 times more volatile than Amazon Inc. It trades about 0.04 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.17 per unit of volatility. If you would invest  12,656  in Amazon Inc on January 20, 2024 and sell it today you would earn a total of  5,266  from holding Amazon Inc or generate 41.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.19%
Values	Daily Returns

Ford Motor  vs.  Amazon Inc

Ford Motor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Amazon

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

The idea behind Ford Motor and Amazon Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.