Correlation Between Ford and Electronic City

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

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

Diversification Opportunities for Ford and Electronic City

-0.15

Correlation Coefficient

Ford  Electronic City

Good diversification

The 3 months correlation between Ford and Electronic is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Electronic City Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic City Indonesia 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 Electronic City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic City Indonesia has no effect on the direction of Ford i.e., Ford and Electronic City go up and down completely randomly.

Pair Corralation between Ford and Electronic City

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Electronic City. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 4.01 times less risky than Electronic City. The stock trades about -0.01 of its potential returns per unit of risk. The Electronic City Indonesia is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  24,600  in Electronic City Indonesia on September 14, 2024 and sell it today you would earn a total of  6,200  from holding Electronic City Indonesia or generate 25.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Ford Motor  vs.  Electronic City Indonesia

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Electronic City Indonesia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic City Indonesia are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Electronic City disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Electronic City

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

The idea behind Ford Motor and Electronic City Indonesia 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.