Correlation Between Ford and INITECH Co

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

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

Diversification Opportunities for Ford and INITECH Co

0.26

Correlation Coefficient

Ford  INITECH Co

Modest diversification

The 3 months correlation between Ford and INITECH is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and INITECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INITECH Co 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 INITECH Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INITECH Co has no effect on the direction of Ford i.e., Ford and INITECH Co go up and down completely randomly.

Pair Corralation between Ford and INITECH Co

Taking into account the 90-day investment horizon Ford is expected to generate 2.94 times less return on investment than INITECH Co. In addition to that, Ford is 1.13 times more volatile than INITECH Co. It trades about 0.1 of its total potential returns per unit of risk. INITECH Co is currently generating about 0.32 per unit of volatility. If you would invest  322,000  in INITECH Co on February 17, 2024 and sell it today you would earn a total of  37,000  from holding INITECH Co or generate 11.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.96%
Values	Daily Returns

Ford Motor  vs.  INITECH Co

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

INITECH Co

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in INITECH Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, INITECH Co may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Ford and INITECH Co

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

The idea behind Ford Motor and INITECH Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.