Correlation Between Apple and Ford
Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and Ford Motor, you can compare the effects of market volatilities on Apple 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 Apple with a short position of Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Ford.
Diversification Opportunities for Apple and Ford
Very good diversification
The 3 months correlation between Apple and Ford is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Apple 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 Apple Inc 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 Apple i.e., Apple and Ford go up and down completely randomly.
Pair Corralation between Apple and Ford
Given the investment horizon of 90 days Apple Inc is expected to generate 0.9 times more return on investment than Ford. However, Apple Inc is 1.12 times less risky than Ford. It trades about 0.18 of its potential returns per unit of risk. Ford Motor is currently generating about -0.13 per unit of risk. If you would invest 16,845 in Apple Inc on February 7, 2024 and sell it today you would earn a total of 1,326 from holding Apple Inc or generate 7.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. Ford Motor
Performance |
| Timeline |
| Apple Inc |
| Ford Motor |
Apple and Ford Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Ford
The main advantage of trading using opposite Apple and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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.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 the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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