Correlation Between Ford and Yanzhou Coal

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

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

Diversification Opportunities for Ford and Yanzhou Coal

-0.19

Correlation Coefficient

Ford  Yanzhou Coal

Good diversification

The 3 months correlation between Ford and Yanzhou is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Yanzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yanzhou Coal Mining 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 Yanzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yanzhou Coal Mining has no effect on the direction of Ford i.e., Ford and Yanzhou Coal go up and down completely randomly.

Pair Corralation between Ford and Yanzhou Coal

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Yanzhou Coal. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.77 times less risky than Yanzhou Coal. The stock trades about -0.07 of its potential returns per unit of risk. The Yanzhou Coal Mining is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  992.00  in Yanzhou Coal Mining on September 19, 2024 and sell it today you would earn a total of  108.00  from holding Yanzhou Coal Mining or generate 10.89% return on investment over 90 days.

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

Ford Motor  vs.  Yanzhou Coal Mining

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.

Yanzhou Coal Mining

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yanzhou Coal Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yanzhou Coal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Yanzhou Coal

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

The idea behind Ford Motor and Yanzhou Coal Mining 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.