Correlation Between Ford and Kingfisher PLC

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

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

Diversification Opportunities for Ford and Kingfisher PLC

0.15

Correlation Coefficient

Ford  Kingfisher PLC

Average diversification

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

Pair Corralation between Ford and Kingfisher PLC

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.86 times more return on investment than Kingfisher PLC. However, Ford Motor is 1.16 times less risky than Kingfisher PLC. It trades about 0.04 of its potential returns per unit of risk. Kingfisher PLC is currently generating about 0.03 per unit of risk. If you would invest  957.00  in Ford Motor on December 29, 2024 and sell it today you would earn a total of  33.00  from holding Ford Motor or generate 3.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.85%
Values	Daily Returns

Ford Motor  vs.  Kingfisher PLC

Ford Motor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Kingfisher PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kingfisher PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Kingfisher PLC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and Kingfisher PLC

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

The idea behind Ford Motor and Kingfisher PLC 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.