Correlation Between Ford and HOB Biotech

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

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

Diversification Opportunities for Ford and HOB Biotech

0.47

Correlation Coefficient

Ford  HOB Biotech

Very weak diversification

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

Pair Corralation between Ford and HOB Biotech

Taking into account the 90-day investment horizon Ford is expected to generate 7.28 times less return on investment than HOB Biotech. But when comparing it to its historical volatility, Ford Motor is 1.76 times less risky than HOB Biotech. It trades about 0.02 of its potential returns per unit of risk. HOB Biotech Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,361  in HOB Biotech Group on September 14, 2024 and sell it today you would earn a total of  7,784  from holding HOB Biotech Group or generate 231.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.36%
Values	Daily Returns

Ford Motor  vs.  HOB Biotech Group

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.

HOB Biotech Group

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in HOB Biotech Group are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HOB Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and HOB Biotech

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

The idea behind Ford Motor and HOB Biotech Group 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.