Correlation Between Ford and Twitter

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

Diversification Opportunities for Ford and Twitter

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Ford and Twitter is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Twitter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twitter 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 Twitter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twitter has no effect on the direction of Ford i.e., Ford and Twitter go up and down completely randomly.

Pair Corralation between Ford and Twitter

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.89 times more return on investment than Twitter. However, Ford is 1.89 times more volatile than Twitter. It trades about 0.54 of its potential returns per unit of risk. Twitter is currently generating about 0.46 per unit of risk. If you would invest  1,184  in Ford Motor on May 17, 2022 and sell it today you would earn a total of  448.00  from holding Ford Motor or generate 37.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  Twitter

 Performance (%) 
       Timeline  
Ford Motor 
Ford Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Ford exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ford Price Channel

Twitter 
Twitter Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Twitter are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.

Twitter Price Channel

Ford and Twitter Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Twitter

The main advantage of trading using opposite Ford and Twitter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Twitter 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 Twitter will offset losses from the drop in Twitter's long position.
The idea behind Ford Motor and Twitter 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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