Correlation Between Ford and China Finance

Can any of the company-specific risk be diversified away by investing in both Ford and China Finance 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 Finance 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 Finance Online, you can compare the effects of market volatilities on Ford and China Finance 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 Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and China Finance.

Diversification Opportunities for Ford and China Finance

0.0

Correlation Coefficient

Ford  China Finance

Pay attention - limited upside

The 3 months correlation between Ford and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China Finance Online in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Finance Online 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 Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Finance Online has no effect on the direction of Ford i.e., Ford and China Finance go up and down completely randomly.

Pair Corralation between Ford and China Finance

Taking into account the 90-day investment horizon Ford is expected to generate 37.83 times less return on investment than China Finance. But when comparing it to its historical volatility, Ford Motor is 20.12 times less risky than China Finance. It trades about 0.02 of its potential returns per unit of risk. China Finance Online is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.25  in China Finance Online on September 13, 2024 and sell it today you would lose (0.24) from holding China Finance Online or give up 96.0% of portfolio value over 90 days.

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

Ford Motor  vs.  China Finance Online

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.

China Finance Online

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Finance Online has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, China Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and China Finance

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

The idea behind Ford Motor and China Finance Online 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.