Correlation Between Ford and Shenzhen SDG

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

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

Diversification Opportunities for Ford and Shenzhen SDG

0.6

Correlation Coefficient

Ford  Shenzhen SDG

Poor diversification

The 3 months correlation between Ford and Shenzhen is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Shenzhen SDG Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen SDG Service 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 Shenzhen SDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen SDG Service has no effect on the direction of Ford i.e., Ford and Shenzhen SDG go up and down completely randomly.

Pair Corralation between Ford and Shenzhen SDG

Taking into account the 90-day investment horizon Ford is expected to generate 103.62 times less return on investment than Shenzhen SDG. But when comparing it to its historical volatility, Ford Motor is 2.18 times less risky than Shenzhen SDG. It trades about 0.0 of its potential returns per unit of risk. Shenzhen SDG Service is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,683  in Shenzhen SDG Service on October 13, 2024 and sell it today you would earn a total of  1,715  from holding Shenzhen SDG Service or generate 63.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.37%
Values	Daily Returns

Ford Motor  vs.  Shenzhen SDG Service

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 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.

Shenzhen SDG Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen SDG Service 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ford and Shenzhen SDG

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

The idea behind Ford Motor and Shenzhen SDG Service 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.