Correlation Between Ford and AU Optronics
Can any of the company-specific risk be diversified away by investing in both Ford and AU Optronics 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 AU Optronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and AU Optronics, you can compare the effects of market volatilities on Ford and AU Optronics 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 AU Optronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and AU Optronics.
Diversification Opportunities for Ford and AU Optronics
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and 2409 is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and AU Optronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AU Optronics 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 AU Optronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AU Optronics has no effect on the direction of Ford i.e., Ford and AU Optronics go up and down completely randomly.
Pair Corralation between Ford and AU Optronics
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.15 times more return on investment than AU Optronics. However, Ford is 1.15 times more volatile than AU Optronics. It trades about 0.19 of its potential returns per unit of risk. AU Optronics is currently generating about -0.19 per unit of risk. If you would invest 1,027 in Ford Motor on August 30, 2024 and sell it today you would earn a total of 83.00 from holding Ford Motor or generate 8.08% 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. AU Optronics
Performance |
| Timeline |
| Ford Motor |
| AU Optronics |
Ford and AU Optronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and AU Optronics
The main advantage of trading using opposite Ford and AU Optronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, AU Optronics 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 AU Optronics will offset losses from the drop in AU Optronics' long position.The idea behind Ford Motor and AU Optronics 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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