Correlation Between Ford and LG Household

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

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

Diversification Opportunities for Ford and LG Household

0.09

Correlation Coefficient

Ford  LG Household

Significant diversification

The 3 months correlation between Ford and 051905 is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LG Household Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Household Healthcare 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 LG Household. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Household Healthcare has no effect on the direction of Ford i.e., Ford and LG Household go up and down completely randomly.

Pair Corralation between Ford and LG Household

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.68 times more return on investment than LG Household. However, Ford is 1.68 times more volatile than LG Household Healthcare. It trades about 0.02 of its potential returns per unit of risk. LG Household Healthcare is currently generating about -0.05 per unit of risk. If you would invest  957.00  in Ford Motor on December 28, 2024 and sell it today you would earn a total of  15.00  from holding Ford Motor or generate 1.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Ford Motor  vs.  LG Household Healthcare

Ford Motor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

LG Household Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Household Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LG Household 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 LG Household

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

The idea behind Ford Motor and LG Household Healthcare 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.