Correlation Between Ford and Shanghai Shibei

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

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

Diversification Opportunities for Ford and Shanghai Shibei

-0.09

Correlation Coefficient

Ford  Shanghai Shibei

Good diversification

The 3 months correlation between Ford and Shanghai is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Shanghai Shibei Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shibei Hi 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 Shanghai Shibei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shibei Hi has no effect on the direction of Ford i.e., Ford and Shanghai Shibei go up and down completely randomly.

Pair Corralation between Ford and Shanghai Shibei

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.96 times more return on investment than Shanghai Shibei. However, Ford Motor is 1.04 times less risky than Shanghai Shibei. It trades about 0.04 of its potential returns per unit of risk. Shanghai Shibei Hi Tech is currently generating about -0.04 per unit of risk. If you would invest  959.00  in Ford Motor on December 22, 2024 and sell it today you would earn a total of  41.00  from holding Ford Motor or generate 4.28% 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.  Shanghai Shibei Hi Tech

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.

Shanghai Shibei Hi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Shibei Hi Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Shibei 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 Shanghai Shibei

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

The idea behind Ford Motor and Shanghai Shibei Hi Tech 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 Anywhere module to track or share privately all of your investments from the convenience of any device.