Correlation Between Ford and China Natural
Can any of the company-specific risk be diversified away by investing in both Ford and China Natural 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 Natural 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 Natural Resources, you can compare the effects of market volatilities on Ford and China Natural 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 Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and China Natural.
Diversification Opportunities for Ford and China Natural
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and China is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Natural Resources 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 Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Natural Resources has no effect on the direction of Ford i.e., Ford and China Natural go up and down completely randomly.
Pair Corralation between Ford and China Natural
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.36 times more return on investment than China Natural. However, Ford Motor is 2.74 times less risky than China Natural. It trades about 0.0 of its potential returns per unit of risk. China Natural Resources is currently generating about -0.02 per unit of risk. If you would invest 1,194 in Ford Motor on August 27, 2024 and sell it today you would lose (76.00) from holding Ford Motor or give up 6.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. China Natural Resources
Performance |
| Timeline |
| Ford Motor |
| China Natural Resources |
Ford and China Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and China Natural
The main advantage of trading using opposite Ford and China Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, China Natural 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 Natural will offset losses from the drop in China Natural's long position.The idea behind Ford Motor and China Natural Resources 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.| China Natural vs. Seychelle Environmtl | China Natural vs. Vow ASA | China Natural vs. Eestech | China Natural vs. Energy and Water |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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