Correlation Between Ford and CHINA WATER

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

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

Diversification Opportunities for Ford and CHINA WATER

-0.03

Correlation Coefficient

Ford  CHINA WATER

Good diversification

The 3 months correlation between Ford and CHINA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CHINA WATER IGR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA WATER IGR 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 CHINA WATER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA WATER IGR has no effect on the direction of Ford i.e., Ford and CHINA WATER go up and down completely randomly.

Pair Corralation between Ford and CHINA WATER

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the CHINA WATER. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 6.22 times less risky than CHINA WATER. The stock trades about -0.19 of its potential returns per unit of risk. The CHINA WATER IGR is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3.50  in CHINA WATER IGR on September 21, 2024 and sell it today you would lose (0.50) from holding CHINA WATER IGR or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  CHINA WATER IGR

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CHINA WATER IGR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA WATER IGR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ford and CHINA WATER

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

The idea behind Ford Motor and CHINA WATER IGR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.