Correlation Between Ford and ACM Research

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

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

Diversification Opportunities for Ford and ACM Research

0.23

Correlation Coefficient

Ford  ACM Research

Modest diversification

The 3 months correlation between Ford and ACM is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ACM Research Shanghai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACM Research Shanghai 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 ACM Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACM Research Shanghai has no effect on the direction of Ford i.e., Ford and ACM Research go up and down completely randomly.

Pair Corralation between Ford and ACM Research

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the ACM Research. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.09 times less risky than ACM Research. The stock trades about -0.23 of its potential returns per unit of risk. The ACM Research Shanghai is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  11,461  in ACM Research Shanghai on September 22, 2024 and sell it today you would lose (843.00) from holding ACM Research Shanghai or give up 7.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  ACM Research Shanghai

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.

ACM Research Shanghai

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ACM Research Shanghai are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ACM Research sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and ACM Research

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

The idea behind Ford Motor and ACM Research Shanghai 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.