Correlation Between Ford and China Shenhua
Can any of the company-specific risk be diversified away by investing in both Ford and China Shenhua 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 Shenhua 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 Shenhua Energy, you can compare the effects of market volatilities on Ford and China Shenhua 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 Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and China Shenhua.
Diversification Opportunities for Ford and China Shenhua
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and China is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy 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 Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Ford i.e., Ford and China Shenhua go up and down completely randomly.
Pair Corralation between Ford and China Shenhua
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the China Shenhua. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.3 times less risky than China Shenhua. The stock trades about 0.0 of its potential returns per unit of risk. The China Shenhua Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 142.00 in China Shenhua Energy on September 4, 2024 and sell it today you would earn a total of 240.00 from holding China Shenhua Energy or generate 169.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 97.9% |
| Values | Daily Returns |
Ford Motor vs. China Shenhua Energy
Performance |
| Timeline |
| Ford Motor |
| China Shenhua Energy |
Ford and China Shenhua Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and China Shenhua
The main advantage of trading using opposite Ford and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, China Shenhua 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 Shenhua will offset losses from the drop in China Shenhua's long position.The idea behind Ford Motor and China Shenhua Energy 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 Shenhua vs. PT Bayan Resources | China Shenhua vs. Yanzhou Coal Mining | China Shenhua vs. Yanzhou Coal Mining | China Shenhua vs. PT Adaro Energy |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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