Correlation Between Ford and China Overseas

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

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

Diversification Opportunities for Ford and China Overseas

0.35

Correlation Coefficient

Ford  China Overseas

Weak diversification

The 3 months correlation between Ford and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Ford i.e., Ford and China Overseas go up and down completely randomly.

Pair Corralation between Ford and China Overseas

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the China Overseas. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.37 times less risky than China Overseas. The stock trades about -0.01 of its potential returns per unit of risk. The China Overseas Land is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,198  in China Overseas Land on November 29, 2024 and sell it today you would lose (248.00) from holding China Overseas Land or give up 20.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.26%
Values	Daily Returns

Ford Motor  vs.  China Overseas Land

Ford Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China Overseas Land

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Overseas showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and China Overseas

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

The idea behind Ford Motor and China Overseas Land 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.