Correlation Between GM and Ford

By analyzing existing cross correlation between General Motors and Ford Motor, you can compare the effects of market volatilities on GM and Ford 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 GM with a short position of Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Ford.

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

Diversification Opportunities for GM and Ford

0.47
  Correlation Coefficient
General Motors
Ford Motor

Very weak diversification

The 3 months correlation between GM and Ford is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Ford Motor in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and GM 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 General Motors are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of GM i.e., GM and Ford go up and down completely randomly.

Pair Corralation between GM and Ford

Allowing for the 90-day total investment horizon GM is expected to generate 1.48 times less return on investment than Ford. In addition to that, GM is 1.01 times more volatile than Ford Motor. It trades about 0.05 of its total potential returns per unit of risk. Ford Motor is currently generating about 0.07 per unit of volatility. If you would invest  894.00  in Ford Motor on October 25, 2021 and sell it today you would earn a total of  1,171  from holding Ford Motor or generate 130.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  Ford Motor

 Performance (%) 
      Timeline 
General Motors 
GM Performance
0 of 100
Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady primary indicators, GM is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

GM Price Channel

Ford Motor 
Ford Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Ford exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ford Price Channel

GM and Ford Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with GM and Ford

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

General Motors

Pair trading matchups for GM

The idea behind General Motors and Ford Motor 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.

Ford Motor

Pair trading matchups for Ford

Check out your portfolio center. 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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