Correlation Between Ford and GOME Retail

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

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

Diversification Opportunities for Ford and GOME Retail

-0.06

Correlation Coefficient

Ford  GOME Retail

Good diversification

The 3 months correlation between Ford and GOME is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and GOME Retail Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GOME Retail Holdings 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 GOME Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GOME Retail Holdings has no effect on the direction of Ford i.e., Ford and GOME Retail go up and down completely randomly.

Pair Corralation between Ford and GOME Retail

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the GOME Retail. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 6.52 times less risky than GOME Retail. The stock trades about -0.02 of its potential returns per unit of risk. The GOME Retail Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.55  in GOME Retail Holdings on September 24, 2024 and sell it today you would lose (0.45) from holding GOME Retail Holdings or give up 81.82% of portfolio value over 90 days.

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

Ford Motor  vs.  GOME Retail Holdings

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.

GOME Retail Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GOME Retail Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GOME Retail unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and GOME Retail

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

The idea behind Ford Motor and GOME Retail Holdings 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.