Correlation Between Microsoft Corp and Ford

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

Diversification Opportunities for Microsoft Corp and Ford

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and Ford is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Microsoft Corp 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 Microsoft Corp 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 Microsoft Corp i.e., Microsoft Corp and Ford go up and down completely randomly.

Pair Corralation between Microsoft Corp and Ford

Given the investment horizon of 90 days Microsoft Corp is expected to generate 0.51 times more return on investment than Ford. However, Microsoft Corp is 1.95 times less risky than Ford. It trades about -0.25 of its potential returns per unit of risk. Ford Motor is currently generating about -0.38 per unit of risk. If you would invest  26,147  in Microsoft Corp on July 2, 2022 and sell it today you would lose (2,397)  from holding Microsoft Corp or give up 9.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Ford Motor

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Microsoft Price Channel

Ford Motor 
Ford Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Ford is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ford Price Channel

Microsoft Corp and Ford Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Ford

The main advantage of trading using opposite Microsoft Corp and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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.
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The idea behind Microsoft Corp 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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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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