Correlation Between Ford and Kung Long

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

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

Diversification Opportunities for Ford and Kung Long

0.15

Correlation Coefficient

Ford  Kung Long

Average diversification

The 3 months correlation between Ford and Kung is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Kung Long Batteries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kung Long Batteries 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 Kung Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kung Long Batteries has no effect on the direction of Ford i.e., Ford and Kung Long go up and down completely randomly.

Pair Corralation between Ford and Kung Long

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Kung Long. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.17 times less risky than Kung Long. The stock trades about -0.18 of its potential returns per unit of risk. The Kung Long Batteries is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  14,750  in Kung Long Batteries on September 13, 2024 and sell it today you would earn a total of  1,200  from holding Kung Long Batteries or generate 8.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Kung Long Batteries

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

Kung Long Batteries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kung Long Batteries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Kung Long is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and Kung Long

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

The idea behind Ford Motor and Kung Long Batteries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.