Correlation Between PulteGroup and Ford

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

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

Diversification Opportunities for PulteGroup and Ford

0.67

Correlation Coefficient

PulteGroup  Ford

Poor diversification

The 3 months correlation between PulteGroup and Ford is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding PulteGroup and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and PulteGroup 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 PulteGroup 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 PulteGroup i.e., PulteGroup and Ford go up and down completely randomly.

Pair Corralation between PulteGroup and Ford

Considering the 90-day investment horizon PulteGroup is expected to generate 2.13 times less return on investment than Ford. But when comparing it to its historical volatility, PulteGroup is 1.24 times less risky than Ford. It trades about 0.07 of its potential returns per unit of risk. Ford Motor is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,104  in Ford Motor on January 25, 2024 and sell it today you would earn a total of  190.00  from holding Ford Motor or generate 17.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

PulteGroup  vs.  Ford Motor

PulteGroup

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PulteGroup are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, PulteGroup may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Ford Motor

Risk-Adjusted Performance

9 of 100

OK

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. Despite nearly unfluctuating technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PulteGroup and Ford

The main advantage of trading using opposite PulteGroup and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PulteGroup 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 PulteGroup 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.