Correlation Between Ford and Taiwan Speciality

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

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

Diversification Opportunities for Ford and Taiwan Speciality

-0.03

Correlation Coefficient

Ford  Taiwan Speciality

Good diversification

The 3 months correlation between Ford and Taiwan is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality 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 Taiwan Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Speciality has no effect on the direction of Ford i.e., Ford and Taiwan Speciality go up and down completely randomly.

Pair Corralation between Ford and Taiwan Speciality

Taking into account the 90-day investment horizon Ford is expected to generate 121.76 times less return on investment than Taiwan Speciality. But when comparing it to its historical volatility, Ford Motor is 1.29 times less risky than Taiwan Speciality. It trades about 0.0 of its potential returns per unit of risk. Taiwan Speciality Chemicals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,570  in Taiwan Speciality Chemicals on December 4, 2024 and sell it today you would earn a total of  15,680  from holding Taiwan Speciality Chemicals or generate 182.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.17%
Values	Daily Returns

Ford Motor  vs.  Taiwan Speciality Chemicals

Ford Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Taiwan Speciality

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Speciality showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Taiwan Speciality

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

The idea behind Ford Motor and Taiwan Speciality Chemicals 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.