Correlation Between Microsoft and Ford

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

Diversification Opportunities for Microsoft and Ford

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Microsoft and Ford is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Microsoft 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 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 i.e., Microsoft and Ford go up and down completely randomly.

Pair Corralation between Microsoft and Ford

Given the investment horizon of 90 days Microsoft is expected to generate 0.77 times more return on investment than Ford. However, Microsoft is 1.29 times less risky than Ford. It trades about 0.25 of its potential returns per unit of risk. Ford Motor is currently generating about -0.09 per unit of risk. If you would invest  41,581  in Microsoft on March 15, 2024 and sell it today you would earn a total of  2,525  from holding Microsoft or generate 6.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Ford Motor

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Ford Motor 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Microsoft and Ford Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Ford

The main advantage of trading using opposite Microsoft and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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