Correlation Between GM and Ford

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

Diversification Opportunities for GM and Ford

 0.93 Correlation Coefficient

Almost no diversification

The 3 months correlation between GM and Ford is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Ford Motor in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and GM 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 General Motors 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 GM i.e., GM and Ford go up and down completely randomly.

Pair Corralation between GM and Ford

Allowing for the 90-day total investment horizon GM is expected to generate 2.15 times less return on investment than Ford. But when comparing it to its historical volatility, General Motors is 1.07 times less risky than Ford. It trades about 0.04 of its potential returns per unit of risk. Ford Motor is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  593.00  in Ford Motor on February 16, 2022 and sell it today you would earn a total of  712.00  from holding Ford Motor or generate 120.07% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Very Strong Accuracy 100.0% Values Daily Returns

General Motors  vs.  Ford Motor

 Performance (%)
 Timeline
 General Motors Correlation Profile
GM Performance
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Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's primary indicators remain relatively steady which may send shares a bit higher in June 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

GM Price Channel

 Performance Backtest Predict
 Ford Motor Correlation Profile
Ford Performance
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Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in June 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Ford Price Channel

 Performance Backtest Predict

GM and Ford Volatility Contrast

 Predicted Return Density
 Returns

Pair Trading with GM and Ford

The main advantage of trading using opposite GM and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.

General Motors

The idea behind General Motors 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.