Correlation Between Ford and Fairchem Organics

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

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

Diversification Opportunities for Ford and Fairchem Organics

-0.38

Correlation Coefficient

Ford  Fairchem Organics

Very good diversification

The 3 months correlation between Ford and Fairchem is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics 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 Fairchem Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairchem Organics has no effect on the direction of Ford i.e., Ford and Fairchem Organics go up and down completely randomly.

Pair Corralation between Ford and Fairchem Organics

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.8 times more return on investment than Fairchem Organics. However, Ford Motor is 1.25 times less risky than Fairchem Organics. It trades about 0.01 of its potential returns per unit of risk. Fairchem Organics Limited is currently generating about 0.0 per unit of risk. If you would invest  984.00  in Ford Motor on September 20, 2024 and sell it today you would lose (10.00) from holding Ford Motor or give up 1.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Ford Motor  vs.  Fairchem Organics 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 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.

Fairchem Organics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fairchem Organics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Fairchem Organics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and Fairchem Organics

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

The idea behind Ford Motor and Fairchem Organics 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.