Correlation Between Ford and GM
Can any of the company-specific risk be diversified away by investing in both Ford and GM 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 Ford and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and General Motors, you can compare the effects of market volatilities on Ford and GM 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 Ford with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and GM.
Diversification Opportunities for Ford and GM
Very poor diversification
The 3 months correlation between Ford and GM is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Ford 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 Ford Motor are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Ford i.e., Ford and GM go up and down completely randomly.
Pair Corralation between Ford and GM
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.55 times more return on investment than GM. However, Ford is 1.55 times more volatile than General Motors. It trades about 0.09 of its potential returns per unit of risk. General Motors is currently generating about 0.08 per unit of risk. If you would invest 1,244 in Ford Motor on January 26, 2024 and sell it today you would earn a total of 51.00 from holding Ford Motor or generate 4.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. General Motors
Performance |
| Timeline |
| Ford Motor |
| General Motors |
Ford and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and GM
The main advantage of trading using opposite Ford and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.The idea behind Ford Motor and General Motors 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
Other Complementary Tools
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio |