Correlation Between Ford and Vanguard

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

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

Diversification Opportunities for Ford and Vanguard

0.52

Correlation Coefficient

Ford  Vanguard

Very weak diversification

The 3 months correlation between Ford and Vanguard is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Vanguard SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Mid 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Mid has no effect on the direction of Ford i.e., Ford and Vanguard go up and down completely randomly.

Pair Corralation between Ford and Vanguard

Taking into account the 90-day investment horizon Ford is expected to generate 1.31 times less return on investment than Vanguard. In addition to that, Ford is 2.29 times more volatile than Vanguard SP Mid Cap. It trades about 0.04 of its total potential returns per unit of risk. Vanguard SP Mid Cap is currently generating about 0.12 per unit of volatility. If you would invest  8,563  in Vanguard SP Mid Cap on August 26, 2024 and sell it today you would earn a total of  2,754  from holding Vanguard SP Mid Cap or generate 32.16% return on investment over 90 days.

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

Ford Motor  vs.  Vanguard SP Mid Cap

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.

Vanguard SP Mid

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Mid Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ford and Vanguard

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

The idea behind Ford Motor and Vanguard SP Mid Cap 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.