Correlation Between Ford and Cathay Biotech

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

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

Diversification Opportunities for Ford and Cathay Biotech

0.19

Correlation Coefficient

Ford  Cathay Biotech

Average diversification

The 3 months correlation between Ford and Cathay is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Cathay Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Biotech 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 Cathay Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Biotech has no effect on the direction of Ford i.e., Ford and Cathay Biotech go up and down completely randomly.

Pair Corralation between Ford and Cathay Biotech

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Cathay Biotech. In addition to that, Ford is 1.03 times more volatile than Cathay Biotech. It trades about -0.1 of its total potential returns per unit of risk. Cathay Biotech is currently generating about -0.05 per unit of volatility. If you would invest  4,550  in Cathay Biotech on September 20, 2024 and sell it today you would lose (266.00) from holding Cathay Biotech or give up 5.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Ford Motor  vs.  Cathay Biotech

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 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.

Cathay Biotech

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Ford and Cathay Biotech

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

The idea behind Ford Motor and Cathay Biotech 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.