Correlation Between Ford and Bumi Resources

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

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

Diversification Opportunities for Ford and Bumi Resources

-0.11

Correlation Coefficient

Ford  Bumi Resources

Good diversification

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

Pair Corralation between Ford and Bumi Resources

Taking into account the 90-day investment horizon Ford is expected to generate 1.03 times less return on investment than Bumi Resources. But when comparing it to its historical volatility, Ford Motor is 2.38 times less risky than Bumi Resources. It trades about 0.06 of its potential returns per unit of risk. Bumi Resources Minerals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  33,200  in Bumi Resources Minerals on December 27, 2024 and sell it today you would earn a total of  200.00  from holding Bumi Resources Minerals or generate 0.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Ford Motor  vs.  Bumi Resources Minerals

Ford Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Bumi Resources Minerals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bumi Resources Minerals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bumi Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ford and Bumi Resources

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

The idea behind Ford Motor and Bumi Resources Minerals 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.