Correlation Between Ford and Chemanex PLC

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

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

Diversification Opportunities for Ford and Chemanex PLC

-0.79

Correlation Coefficient

Ford  Chemanex PLC

Pay attention - limited upside

The 3 months correlation between Ford and Chemanex is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Chemanex PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemanex PLC 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 Chemanex PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemanex PLC has no effect on the direction of Ford i.e., Ford and Chemanex PLC go up and down completely randomly.

Pair Corralation between Ford and Chemanex PLC

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Chemanex PLC. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.31 times less risky than Chemanex PLC. The stock trades about -0.05 of its potential returns per unit of risk. The Chemanex PLC is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  8,800  in Chemanex PLC on October 22, 2024 and sell it today you would earn a total of  7,375  from holding Chemanex PLC or generate 83.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.32%
Values	Daily Returns

Ford Motor  vs.  Chemanex PLC

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.

Chemanex PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chemanex PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chemanex PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Chemanex PLC

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

The idea behind Ford Motor and Chemanex PLC 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.