Correlation Between Ford and GCS Holdings

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

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

Diversification Opportunities for Ford and GCS Holdings

-0.07

Correlation Coefficient

Ford  GCS Holdings

Good diversification

The 3 months correlation between Ford and GCS is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and GCS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GCS Holdings 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 GCS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GCS Holdings has no effect on the direction of Ford i.e., Ford and GCS Holdings go up and down completely randomly.

Pair Corralation between Ford and GCS Holdings

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the GCS Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.41 times less risky than GCS Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The GCS Holdings is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  4,100  in GCS Holdings on September 25, 2024 and sell it today you would earn a total of  9,350  from holding GCS Holdings or generate 228.05% return on investment over 90 days.

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

Ford Motor  vs.  GCS Holdings

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.

GCS Holdings

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in GCS Holdings are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, GCS Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and GCS Holdings

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

The idea behind Ford Motor and GCS Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.