Correlation Between Ford and HS Valve

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

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

Diversification Opportunities for Ford and HS Valve

0.14

Correlation Coefficient

Ford  HS Valve

Average diversification

The 3 months correlation between Ford and 039610 is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and HS Valve Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HS Valve 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 HS Valve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HS Valve has no effect on the direction of Ford i.e., Ford and HS Valve go up and down completely randomly.

Pair Corralation between Ford and HS Valve

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the HS Valve. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.96 times less risky than HS Valve. The stock trades about -0.09 of its potential returns per unit of risk. The HS Valve Co is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  993,000  in HS Valve Co on December 1, 2024 and sell it today you would lose (163,000) from holding HS Valve Co or give up 16.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Ford Motor  vs.  HS Valve Co

Ford Motor

Risk-Adjusted Performance

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.

HS Valve

Risk-Adjusted Performance

Very Weak

Over the last 90 days HS Valve Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ford and HS Valve

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

The idea behind Ford Motor and HS Valve 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.