Correlation Between Ford and CITIC

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

By analyzing existing cross correlation between Ford Motor and CITIC LTD ADR5, you can compare the effects of market volatilities on Ford and CITIC 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 CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and CITIC.

Diversification Opportunities for Ford and CITIC

-0.05

Correlation Coefficient

Ford  CITIC

Good diversification

The 3 months correlation between Ford and CITIC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CITIC LTD ADR5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC LTD ADR5 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 CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC LTD ADR5 has no effect on the direction of Ford i.e., Ford and CITIC go up and down completely randomly.

Pair Corralation between Ford and CITIC

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the CITIC. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.02 times less risky than CITIC. The stock trades about -0.39 of its potential returns per unit of risk. The CITIC LTD ADR5 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  515.00  in CITIC LTD ADR5 on September 23, 2024 and sell it today you would earn a total of  5.00  from holding CITIC LTD ADR5 or generate 0.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  CITIC LTD ADR5

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.

CITIC LTD ADR5

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC LTD ADR5 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and CITIC

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

The idea behind Ford Motor and CITIC LTD ADR5 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.