Correlation Between BCE and Ford

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

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

Diversification Opportunities for BCE and Ford

-0.79

Correlation Coefficient

BCE  Ford

Pay attention - limited upside

The 3 months correlation between BCE and Ford is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and BCE 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 BCE Inc are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of BCE i.e., BCE and Ford go up and down completely randomly.

Pair Corralation between BCE and Ford

Considering the 90-day investment horizon BCE Inc is expected to under-perform the Ford. But the stock apears to be less risky and, when comparing its historical volatility, BCE Inc is 1.86 times less risky than Ford. The stock trades about -0.1 of its potential returns per unit of risk. The Ford Motor is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,403  in Ford Motor on January 24, 2024 and sell it today you would lose (115.00) from holding Ford Motor or give up 8.2% of portfolio value over 90 days.

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

BCE Inc  vs.  Ford Motor

BCE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Ford Motor

Risk-Adjusted Performance

11 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BCE and Ford

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

The idea behind BCE Inc and Ford Motor 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.