Correlation Between Ford and China Railway

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

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

Diversification Opportunities for Ford and China Railway

-0.02

Correlation Coefficient

Ford  China Railway

Good diversification

The 3 months correlation between Ford and China is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China Railway Tielong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Tielong 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Tielong has no effect on the direction of Ford i.e., Ford and China Railway go up and down completely randomly.

Pair Corralation between Ford and China Railway

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.76 times more return on investment than China Railway. However, Ford is 1.76 times more volatile than China Railway Tielong. It trades about 0.05 of its potential returns per unit of risk. China Railway Tielong is currently generating about -0.1 per unit of risk. If you would invest  957.00  in Ford Motor on December 20, 2024 and sell it today you would earn a total of  44.00  from holding Ford Motor or generate 4.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Ford Motor  vs.  China Railway Tielong

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

China Railway Tielong

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Tielong has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ford and China Railway

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

The idea behind Ford Motor and China Railway Tielong 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.