Correlation Between Ford and KB No2

Can any of the company-specific risk be diversified away by investing in both Ford and KB No2 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 KB No2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ford Motor and KB No2 Special, you can compare the effects of market volatilities on Ford and KB No2 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 KB No2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and KB No2.

Diversification Opportunities for Ford and KB No2

-0.21

Correlation Coefficient

Ford  KB No2

Very good diversification

The 3 months correlation between Ford and 192250 is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and KB No2 Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB No2 Special 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 KB No2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB No2 Special has no effect on the direction of Ford i.e., Ford and KB No2 go up and down completely randomly.

Pair Corralation between Ford and KB No2

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.6 times more return on investment than KB No2. However, Ford Motor is 1.66 times less risky than KB No2. It trades about -0.05 of its potential returns per unit of risk. KB No2 Special is currently generating about -0.14 per unit of risk. If you would invest  1,077  in Ford Motor on September 19, 2024 and sell it today you would lose (78.00) from holding Ford Motor or give up 7.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	74.6%
Values	Daily Returns

Ford Motor  vs.  KB No2 Special

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.

KB No2 Special

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB No2 Special has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ford and KB No2

The main advantage of trading using opposite Ford and KB No2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, KB No2 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 KB No2 will offset losses from the drop in KB No2's long position.

The idea behind Ford Motor and KB No2 Special 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.