Correlation Between Ford and Thyssenkrupp

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

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

Diversification Opportunities for Ford and Thyssenkrupp

-0.29

Correlation Coefficient

Ford  Thyssenkrupp

Very good diversification

The 3 months correlation between Ford and Thyssenkrupp is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and thyssenkrupp AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on thyssenkrupp AG 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 Thyssenkrupp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of thyssenkrupp AG has no effect on the direction of Ford i.e., Ford and Thyssenkrupp go up and down completely randomly.

Pair Corralation between Ford and Thyssenkrupp

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.56 times more return on investment than Thyssenkrupp. However, Ford Motor is 1.8 times less risky than Thyssenkrupp. It trades about 0.01 of its potential returns per unit of risk. thyssenkrupp AG is currently generating about 0.0 per unit of risk. If you would invest  1,036  in Ford Motor on September 26, 2024 and sell it today you would lose (34.00) from holding Ford Motor or give up 3.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.22%
Values	Daily Returns

Ford Motor  vs.  thyssenkrupp AG

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.

thyssenkrupp AG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in thyssenkrupp AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Thyssenkrupp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Thyssenkrupp

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

The idea behind Ford Motor and thyssenkrupp AG 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.