Correlation Between Ford and SEVEN WEST

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

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

Diversification Opportunities for Ford and SEVEN WEST

-0.65

Correlation Coefficient

Ford  SEVEN WEST

Excellent diversification

The 3 months correlation between Ford and SEVEN is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SEVEN WEST MEDI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEVEN WEST MEDI 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 SEVEN WEST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEVEN WEST MEDI has no effect on the direction of Ford i.e., Ford and SEVEN WEST go up and down completely randomly.

Pair Corralation between Ford and SEVEN WEST

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.63 times more return on investment than SEVEN WEST. However, Ford Motor is 1.59 times less risky than SEVEN WEST. It trades about 0.03 of its potential returns per unit of risk. SEVEN WEST MEDI is currently generating about -0.05 per unit of risk. If you would invest  1,109  in Ford Motor on January 31, 2024 and sell it today you would earn a total of  166.00  from holding Ford Motor or generate 14.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.5%
Values	Daily Returns

Ford Motor  vs.  SEVEN WEST MEDI

Ford Motor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

SEVEN WEST MEDI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEVEN WEST MEDI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Ford and SEVEN WEST

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

The idea behind Ford Motor and SEVEN WEST MEDI 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 Transaction History module to view history of all your transactions and understand their impact on performance.