Correlation Between Ford and Xtrackers FTSE

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

By analyzing existing cross correlation between Ford Motor and Xtrackers FTSE 250, you can compare the effects of market volatilities on Ford and Xtrackers FTSE 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 Xtrackers FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Xtrackers FTSE.

Diversification Opportunities for Ford and Xtrackers FTSE

0.01

Correlation Coefficient

Ford  Xtrackers FTSE

Significant diversification

The 3 months correlation between Ford and Xtrackers is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Xtrackers FTSE 250 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers FTSE 250 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 Xtrackers FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers FTSE 250 has no effect on the direction of Ford i.e., Ford and Xtrackers FTSE go up and down completely randomly.

Pair Corralation between Ford and Xtrackers FTSE

Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.74 times more return on investment than Xtrackers FTSE. However, Ford is 2.74 times more volatile than Xtrackers FTSE 250. It trades about 0.03 of its potential returns per unit of risk. Xtrackers FTSE 250 is currently generating about 0.01 per unit of risk. If you would invest  1,083  in Ford Motor on September 3, 2024 and sell it today you would earn a total of  30.00  from holding Ford Motor or generate 2.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Ford Motor  vs.  Xtrackers FTSE 250

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

Xtrackers FTSE 250

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers FTSE 250 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Xtrackers FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and Xtrackers FTSE

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

The idea behind Ford Motor and Xtrackers FTSE 250 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.