Correlation Between Ford and HMS Networks

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

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

Diversification Opportunities for Ford and HMS Networks

-0.66

Correlation Coefficient

Ford  HMS Networks

Excellent diversification

The 3 months correlation between Ford and HMS is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and HMS Networks AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMS Networks AB 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 HMS Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMS Networks AB has no effect on the direction of Ford i.e., Ford and HMS Networks go up and down completely randomly.

Pair Corralation between Ford and HMS Networks

Taking into account the 90-day investment horizon Ford is expected to generate 13.02 times less return on investment than HMS Networks. But when comparing it to its historical volatility, Ford Motor is 1.14 times less risky than HMS Networks. It trades about 0.0 of its potential returns per unit of risk. HMS Networks AB is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  38,925  in HMS Networks AB on December 1, 2024 and sell it today you would earn a total of  9,835  from holding HMS Networks AB or generate 25.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  HMS Networks AB

Ford Motor

Risk-Adjusted Performance

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.

HMS Networks AB

Risk-Adjusted Performance

Good

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

Pair Trading with Ford and HMS Networks

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

The idea behind Ford Motor and HMS Networks AB 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.