Correlation Between Ford and Darling Ingredients

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

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

Diversification Opportunities for Ford and Darling Ingredients

0.47

Correlation Coefficient

Ford  Darling Ingredients

Very weak diversification

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

Pair Corralation between Ford and Darling Ingredients

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.98 times more return on investment than Darling Ingredients. However, Ford Motor is 1.02 times less risky than Darling Ingredients. It trades about 0.02 of its potential returns per unit of risk. Darling Ingredients is currently generating about -0.03 per unit of risk. If you would invest  1,110  in Ford Motor on January 31, 2024 and sell it today you would earn a total of  165.00  from holding Ford Motor or generate 14.86% 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.  Darling Ingredients

Ford Motor

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

Darling Ingredients

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Darling Ingredients are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ford and Darling Ingredients

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

The idea behind Ford Motor and Darling Ingredients 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.