Correlation Between Ford and Envirotech Vehicles

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

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

Diversification Opportunities for Ford and Envirotech Vehicles

0.45

Correlation Coefficient

Ford  Envirotech Vehicles

Very weak diversification

The 3 months correlation between Ford and Envirotech is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Envirotech Vehicles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Envirotech Vehicles 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 Envirotech Vehicles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Envirotech Vehicles has no effect on the direction of Ford i.e., Ford and Envirotech Vehicles go up and down completely randomly.

Pair Corralation between Ford and Envirotech Vehicles

Given the investment horizon of 90 days Ford Motor is expected to generate 0.18 times more return on investment than Envirotech Vehicles. However, Ford Motor is 5.55 times less risky than Envirotech Vehicles. It trades about 0.02 of its potential returns per unit of risk. Envirotech Vehicles is currently generating about -0.01 per unit of risk. If you would invest  2,200  in Ford Motor on March 7, 2024 and sell it today you would earn a total of  197.00  from holding Ford Motor or generate 8.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Ford Motor  vs.  Envirotech Vehicles

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ford is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Envirotech Vehicles

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Envirotech Vehicles has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in July 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Ford and Envirotech Vehicles

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

The idea behind Ford Motor and Envirotech Vehicles 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.