Correlation Between Ford and Liquidity Services

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

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

Diversification Opportunities for Ford and Liquidity Services

0.44

Correlation Coefficient

Ford  Liquidity Services

Very weak diversification

The 3 months correlation between Ford and Liquidity is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Liquidity Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liquidity Services 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 Liquidity Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liquidity Services has no effect on the direction of Ford i.e., Ford and Liquidity Services go up and down completely randomly.

Pair Corralation between Ford and Liquidity Services

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Liquidity Services. In addition to that, Ford is 1.58 times more volatile than Liquidity Services. It trades about -0.15 of its total potential returns per unit of risk. Liquidity Services is currently generating about -0.18 per unit of volatility. If you would invest  1,850  in Liquidity Services on February 2, 2024 and sell it today you would lose (110.00) from holding Liquidity Services or give up 5.95% of portfolio value over 90 days.

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

Ford Motor  vs.  Liquidity Services

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) 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.

Liquidity Services

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liquidity Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Liquidity Services is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and Liquidity Services

The main advantage of trading using opposite Ford and Liquidity Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Liquidity Services 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 Liquidity Services will offset losses from the drop in Liquidity Services' long position.

The idea behind Ford Motor and Liquidity Services 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.