Correlation Between Ford and China Resources

Can any of the company-specific risk be diversified away by investing in both Ford and China 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 China 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 China Resources Land, you can compare the effects of market volatilities on Ford and China 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 China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and China Resources.

Diversification Opportunities for Ford and China Resources

-0.08

Correlation Coefficient

Ford  China Resources

Good diversification

The 3 months correlation between Ford and China is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China Resources Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources 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 Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Land has no effect on the direction of Ford i.e., Ford and China Resources go up and down completely randomly.

Pair Corralation between Ford and China Resources

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.95 times more return on investment than China Resources. However, Ford Motor is 1.06 times less risky than China Resources. It trades about -0.09 of its potential returns per unit of risk. China Resources Land is currently generating about -0.1 per unit of risk. If you would invest  1,091  in Ford Motor on September 23, 2024 and sell it today you would lose (103.00) from holding Ford Motor or give up 9.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

Ford Motor  vs.  China Resources Land

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.

China Resources Land

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Land are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and China Resources

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

The idea behind Ford Motor and China Resources 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.