Correlation Between Ford and Southern Rubber

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

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

Diversification Opportunities for Ford and Southern Rubber

-0.41

Correlation Coefficient

Ford  Southern Rubber

Very good diversification

The 3 months correlation between Ford and Southern is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Southern Rubber Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Rubber Industry 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 Southern Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Rubber Industry has no effect on the direction of Ford i.e., Ford and Southern Rubber go up and down completely randomly.

Pair Corralation between Ford and Southern Rubber

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Southern Rubber. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.62 times less risky than Southern Rubber. The stock trades about -0.35 of its potential returns per unit of risk. The Southern Rubber Industry is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,370,000  in Southern Rubber Industry on September 29, 2024 and sell it today you would earn a total of  190,000  from holding Southern Rubber Industry or generate 13.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.3%
Values	Daily Returns

Ford Motor  vs.  Southern Rubber Industry

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.

Southern Rubber Industry

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Rubber Industry are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Southern Rubber displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Southern Rubber

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

The idea behind Ford Motor and Southern Rubber Industry 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.