Correlation Between Ford and Sinopec Oilfield
Can any of the company-specific risk be diversified away by investing in both Ford and Sinopec Oilfield 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 Sinopec Oilfield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Sinopec Oilfield Service, you can compare the effects of market volatilities on Ford and Sinopec Oilfield 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 Sinopec Oilfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Sinopec Oilfield.
Diversification Opportunities for Ford and Sinopec Oilfield
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and Sinopec is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Sinopec Oilfield Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopec Oilfield Service 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 Sinopec Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopec Oilfield Service has no effect on the direction of Ford i.e., Ford and Sinopec Oilfield go up and down completely randomly.
Pair Corralation between Ford and Sinopec Oilfield
Taking into account the 90-day investment horizon Ford is expected to generate 7.66 times less return on investment than Sinopec Oilfield. But when comparing it to its historical volatility, Ford Motor is 2.69 times less risky than Sinopec Oilfield. It trades about 0.01 of its potential returns per unit of risk. Sinopec Oilfield Service is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 6.81 in Sinopec Oilfield Service on September 4, 2024 and sell it today you would lose (0.27) from holding Sinopec Oilfield Service or give up 3.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Ford Motor vs. Sinopec Oilfield Service
Performance |
| Timeline |
| Ford Motor |
| Sinopec Oilfield Service |
Ford and Sinopec Oilfield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Sinopec Oilfield
The main advantage of trading using opposite Ford and Sinopec Oilfield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Sinopec Oilfield 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 Sinopec Oilfield will offset losses from the drop in Sinopec Oilfield's long position.The idea behind Ford Motor and Sinopec Oilfield Service 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.| Sinopec Oilfield vs. Apple Inc | Sinopec Oilfield vs. Microsoft | Sinopec Oilfield vs. Amazon Inc | Sinopec Oilfield vs. Alphabet Inc Class C |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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