Correlation Between Ford and Wan Hai

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

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

Diversification Opportunities for Ford and Wan Hai

0.13

Correlation Coefficient

Ford  Wan Hai

Average diversification

The 3 months correlation between Ford and Wan is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Wan Hai Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wan Hai Lines 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 Wan Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wan Hai Lines has no effect on the direction of Ford i.e., Ford and Wan Hai go up and down completely randomly.

Pair Corralation between Ford and Wan Hai

Taking into account the 90-day investment horizon Ford is expected to generate 1.56 times less return on investment than Wan Hai. But when comparing it to its historical volatility, Ford Motor is 1.05 times less risky than Wan Hai. It trades about 0.06 of its potential returns per unit of risk. Wan Hai Lines is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,080  in Wan Hai Lines on December 19, 2024 and sell it today you would earn a total of  700.00  from holding Wan Hai Lines or generate 8.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.22%
Values	Daily Returns

Ford Motor  vs.  Wan Hai Lines

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Wan Hai Lines

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wan Hai Lines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wan Hai may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ford and Wan Hai

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

The idea behind Ford Motor and Wan Hai Lines 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.