Correlation Between Ford and Namhae Chemical

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

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

Diversification Opportunities for Ford and Namhae Chemical

-0.3

Correlation Coefficient

Ford  Namhae Chemical

Very good diversification

The 3 months correlation between Ford and Namhae is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Namhae Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Namhae Chemical 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 Namhae Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Namhae Chemical has no effect on the direction of Ford i.e., Ford and Namhae Chemical go up and down completely randomly.

Pair Corralation between Ford and Namhae Chemical

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.71 times more return on investment than Namhae Chemical. However, Ford is 1.71 times more volatile than Namhae Chemical. It trades about 0.01 of its potential returns per unit of risk. Namhae Chemical is currently generating about -0.06 per unit of risk. If you would invest  1,068  in Ford Motor on September 14, 2024 and sell it today you would lose (29.00) from holding Ford Motor or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.2%
Values	Daily Returns

Ford Motor  vs.  Namhae Chemical

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Namhae Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Namhae Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Namhae Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Namhae Chemical

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

The idea behind Ford Motor and Namhae Chemical 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.