Correlation Between Ford and Kangxin New

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

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

Diversification Opportunities for Ford and Kangxin New

0.32

Correlation Coefficient

Ford  Kangxin New

Weak diversification

The 3 months correlation between Ford and Kangxin is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Kangxin New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kangxin New Materials 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 Kangxin New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kangxin New Materials has no effect on the direction of Ford i.e., Ford and Kangxin New go up and down completely randomly.

Pair Corralation between Ford and Kangxin New

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Kangxin New. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.85 times less risky than Kangxin New. The stock trades about -0.09 of its potential returns per unit of risk. The Kangxin New Materials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  261.00  in Kangxin New Materials on December 2, 2024 and sell it today you would lose (14.00) from holding Kangxin New Materials or give up 5.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Ford Motor  vs.  Kangxin New Materials

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 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.

Kangxin New Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kangxin New Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Kangxin New is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Kangxin New

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

The idea behind Ford Motor and Kangxin New Materials 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.