Correlation Between Charles Schwab and Ford

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

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

Diversification Opportunities for Charles Schwab and Ford

0.64

Correlation Coefficient

Charles Schwab  Ford

Poor diversification

The 3 months correlation between Charles and Ford is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Charles Schwab and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Charles Schwab 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 The Charles Schwab 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 Charles Schwab i.e., Charles Schwab and Ford go up and down completely randomly.

Pair Corralation between Charles Schwab and Ford

Assuming the 90 days trading horizon The Charles Schwab is expected to under-perform the Ford. But the preferred stock apears to be less risky and, when comparing its historical volatility, The Charles Schwab is 2.34 times less risky than Ford. The preferred stock trades about -0.41 of its potential returns per unit of risk. The Ford Motor is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  1,290  in Ford Motor on January 20, 2024 and sell it today you would lose (84.00) from holding Ford Motor or give up 6.51% of portfolio value over 90 days.

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

The Charles Schwab  vs.  Ford Motor

Charles Schwab

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Charles Schwab has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Charles Schwab is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Ford Motor

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Charles Schwab and Ford

The main advantage of trading using opposite Charles Schwab and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charles Schwab 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 The Charles Schwab 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.