Correlation Between Ford and Huaxi Securities

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

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

Diversification Opportunities for Ford and Huaxi Securities

0.02

Correlation Coefficient

Ford  Huaxi Securities

Significant diversification

The 3 months correlation between Ford and Huaxi is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Huaxi Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaxi Securities 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 Huaxi Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaxi Securities has no effect on the direction of Ford i.e., Ford and Huaxi Securities go up and down completely randomly.

Pair Corralation between Ford and Huaxi Securities

Taking into account the 90-day investment horizon Ford is expected to generate 3.51 times less return on investment than Huaxi Securities. In addition to that, Ford is 1.15 times more volatile than Huaxi Securities Co. It trades about 0.01 of its total potential returns per unit of risk. Huaxi Securities Co is currently generating about 0.02 per unit of volatility. If you would invest  775.00  in Huaxi Securities Co on September 29, 2024 and sell it today you would earn a total of  94.00  from holding Huaxi Securities Co or generate 12.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.57%
Values	Daily Returns

Ford Motor  vs.  Huaxi Securities Co

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.

Huaxi Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaxi Securities Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Huaxi Securities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Huaxi Securities

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

The idea behind Ford Motor and Huaxi Securities Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.