Correlation Between Ford and Formosan Union
Can any of the company-specific risk be diversified away by investing in both Ford and Formosan Union 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 Formosan Union into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Formosan Union Chemical, you can compare the effects of market volatilities on Ford and Formosan Union 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 Formosan Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Formosan Union.
Diversification Opportunities for Ford and Formosan Union
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Formosan is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Formosan Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Union Chemical 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 Formosan Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Union Chemical has no effect on the direction of Ford i.e., Ford and Formosan Union go up and down completely randomly.
Pair Corralation between Ford and Formosan Union
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Formosan Union. In addition to that, Ford is 1.79 times more volatile than Formosan Union Chemical. It trades about -0.12 of its total potential returns per unit of risk. Formosan Union Chemical is currently generating about -0.11 per unit of volatility. If you would invest 2,135 in Formosan Union Chemical on November 2, 2024 and sell it today you would lose (85.00) from holding Formosan Union Chemical or give up 3.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 92.68% |
| Values | Daily Returns |
Ford Motor vs. Formosan Union Chemical
Performance |
| Timeline |
| Ford Motor |
| Formosan Union Chemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Ford and Formosan Union Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Formosan Union
The main advantage of trading using opposite Ford and Formosan Union positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Formosan Union 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 Formosan Union will offset losses from the drop in Formosan Union's long position.The idea behind Ford Motor and Formosan Union Chemical 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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