Correlation Between Ford and Cyclone Metals

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

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

Diversification Opportunities for Ford and Cyclone Metals

-0.53

Correlation Coefficient

Ford  Cyclone Metals

Excellent diversification

The 3 months correlation between Ford and Cyclone is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Cyclone Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cyclone Metals 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 Cyclone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cyclone Metals has no effect on the direction of Ford i.e., Ford and Cyclone Metals go up and down completely randomly.

Pair Corralation between Ford and Cyclone Metals

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Cyclone Metals. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 9.18 times less risky than Cyclone Metals. The stock trades about -0.5 of its potential returns per unit of risk. The Cyclone Metals Limited is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2.50  in Cyclone Metals Limited on September 25, 2024 and sell it today you would earn a total of  2.10  from holding Cyclone Metals Limited or generate 84.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Ford Motor  vs.  Cyclone Metals Limited

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.

Cyclone Metals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cyclone Metals Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Cyclone Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Cyclone Metals

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

The idea behind Ford Motor and Cyclone Metals Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.