Correlation Between Ford and Elspec

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

Diversification Opportunities for Ford and Elspec

0.35
  Correlation Coefficient

Weak diversification

The 3 months correlation between Ford and Elspec is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Elspec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elspec 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 Elspec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elspec has no effect on the direction of Ford i.e., Ford and Elspec go up and down completely randomly.

Pair Corralation between Ford and Elspec

Taking into account the 90-day investment horizon Ford is expected to generate 5.13 times less return on investment than Elspec. But when comparing it to its historical volatility, Ford Motor is 1.3 times less risky than Elspec. It trades about 0.01 of its potential returns per unit of risk. Elspec is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  35,400  in Elspec on December 30, 2023 and sell it today you would earn a total of  21,600  from holding Elspec or generate 61.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy78.95%
ValuesDaily Returns

Ford Motor  vs.  Elspec

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.
Elspec 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Elspec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Elspec is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Ford and Elspec Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Elspec

The main advantage of trading using opposite Ford and Elspec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Elspec 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 Elspec will offset losses from the drop in Elspec's long position.
The idea behind Ford Motor and Elspec 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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