Correlation Between Ford and Liaoning Dingjide

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

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

Diversification Opportunities for Ford and Liaoning Dingjide

-0.11

Correlation Coefficient

Ford  Liaoning Dingjide

Good diversification

The 3 months correlation between Ford and Liaoning is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide 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 Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Ford i.e., Ford and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Ford and Liaoning Dingjide

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Liaoning Dingjide. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.76 times less risky than Liaoning Dingjide. The stock trades about -0.42 of its potential returns per unit of risk. The Liaoning Dingjide Petrochemical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,063  in Liaoning Dingjide Petrochemical on September 25, 2024 and sell it today you would earn a total of  149.00  from holding Liaoning Dingjide Petrochemical or generate 4.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Liaoning Dingjide Petrochemica

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 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.

Liaoning Dingjide

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Liaoning Dingjide

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

The idea behind Ford Motor and Liaoning Dingjide Petrochemical 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .