Correlation Between Ford and Air Asia

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

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

Diversification Opportunities for Ford and Air Asia

-0.4

Correlation Coefficient

Ford  Air Asia

Very good diversification

The 3 months correlation between Ford and Air is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Air Asia Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Asia 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 Air Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Asia has no effect on the direction of Ford i.e., Ford and Air Asia go up and down completely randomly.

Pair Corralation between Ford and Air Asia

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Air Asia. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.67 times less risky than Air Asia. The stock trades about -0.18 of its potential returns per unit of risk. The Air Asia Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,060  in Air Asia Co on September 15, 2024 and sell it today you would earn a total of  100.00  from holding Air Asia Co or generate 3.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  Air Asia 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.

Air Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Asia Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Air Asia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and Air Asia

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

The idea behind Ford Motor and Air Asia 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.