Correlation Between Ford and Cathay SP

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

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

Diversification Opportunities for Ford and Cathay SP

0.52

Correlation Coefficient

Ford  Cathay SP

Very weak diversification

The 3 months correlation between Ford and Cathay is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Cathay SP North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay SP North 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 Cathay SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay SP North has no effect on the direction of Ford i.e., Ford and Cathay SP go up and down completely randomly.

Pair Corralation between Ford and Cathay SP

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Cathay SP. In addition to that, Ford is 1.67 times more volatile than Cathay SP North. It trades about -0.01 of its total potential returns per unit of risk. Cathay SP North is currently generating about 0.08 per unit of volatility. If you would invest  4,371  in Cathay SP North on August 31, 2024 and sell it today you would earn a total of  679.00  from holding Cathay SP North or generate 15.53% 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.  Cathay SP North

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

Cathay SP North

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay SP North are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cathay SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ford and Cathay SP

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

The idea behind Ford Motor and Cathay SP North 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.