Correlation Between Dongfeng and Ford

Can any of the company-specific risk be diversified away by investing in both Dongfeng and Ford 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 Dongfeng and Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongfeng Group and Ford Motor, you can compare the effects of market volatilities on Dongfeng and Ford 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 Dongfeng with a short position of Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongfeng and Ford.

Diversification Opportunities for Dongfeng and Ford

-0.23

Correlation Coefficient

Dongfeng  Ford

Very good diversification

The 3 months correlation between Dongfeng and Ford is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Group and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Dongfeng 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 Dongfeng Group are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Dongfeng i.e., Dongfeng and Ford go up and down completely randomly.

Pair Corralation between Dongfeng and Ford

Assuming the 90 days horizon Dongfeng Group is expected to generate 2.78 times more return on investment than Ford. However, Dongfeng is 2.78 times more volatile than Ford Motor. It trades about -0.01 of its potential returns per unit of risk. Ford Motor is currently generating about -0.5 per unit of risk. If you would invest  50.00  in Dongfeng Group on September 25, 2024 and sell it today you would lose (1.00) from holding Dongfeng Group or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Dongfeng Group  vs.  Ford Motor

Dongfeng Group

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Dongfeng reported solid returns over the last few months and may actually be approaching a breakup point.

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dongfeng and Ford

The main advantage of trading using opposite Dongfeng and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongfeng position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.

The idea behind Dongfeng Group and Ford Motor 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.