Correlation Between Ford and DOW

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

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

Diversification Opportunities for Ford and DOW

0.95
  Correlation Coefficient
Ford Motor
DOW

Almost no diversification

The 3 months correlation between Ford and DOW is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor Company and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Ford i.e. Ford and DOW go up and down completely randomly.
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Pair Corralation between Ford and DOW

Taking into account the 30 trading days horizon, Ford Motor is expected to generate 2.12 times more return on investment than DOW. However, Ford is 2.12 times more volatile than DOW. It trades about 0.14 of its potential returns per unit of risk. DOW is currently generating about 0.12 per unit of risk. If you would invest  453.00  in Ford Motor on June 3, 2020 and sell it today you would earn a total of  151.00  from holding Ford Motor or generate 33.33% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Ford Motor Company  vs.  DOW

 Performance (%) 
      Timeline 
 Predicted Return Density 
      Returns 
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