Correlation Between Ford and Shenzhen Overseas

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

By analyzing existing cross correlation between Ford Motor and Shenzhen Overseas Chinese, you can compare the effects of market volatilities on Ford and Shenzhen Overseas 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 Shenzhen Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Shenzhen Overseas.

Diversification Opportunities for Ford and Shenzhen Overseas

0.05

Correlation Coefficient

Ford  Shenzhen Overseas

Significant diversification

The 3 months correlation between Ford and Shenzhen is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Shenzhen Overseas Chinese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Overseas Chinese 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 Shenzhen Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Overseas Chinese has no effect on the direction of Ford i.e., Ford and Shenzhen Overseas go up and down completely randomly.

Pair Corralation between Ford and Shenzhen Overseas

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Shenzhen Overseas. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.27 times less risky than Shenzhen Overseas. The stock trades about -0.32 of its potential returns per unit of risk. The Shenzhen Overseas Chinese is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  291.00  in Shenzhen Overseas Chinese on September 20, 2024 and sell it today you would earn a total of  15.00  from holding Shenzhen Overseas Chinese or generate 5.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Ford Motor  vs.  Shenzhen Overseas Chinese

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Shenzhen Overseas Chinese

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Overseas Chinese are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Overseas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Shenzhen Overseas

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

The idea behind Ford Motor and Shenzhen Overseas Chinese 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.