Correlation Between Ford and Kumba Iron

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

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

Diversification Opportunities for Ford and Kumba Iron

-0.42

Correlation Coefficient

Ford  Kumba Iron

Very good diversification

The 3 months correlation between Ford and Kumba is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore 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 Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of Ford i.e., Ford and Kumba Iron go up and down completely randomly.

Pair Corralation between Ford and Kumba Iron

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Kumba Iron. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.28 times less risky than Kumba Iron. The stock trades about 0.0 of its potential returns per unit of risk. The Kumba Iron Ore is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,529,100  in Kumba Iron Ore on September 13, 2024 and sell it today you would lose (63,800) from holding Kumba Iron Ore or give up 1.81% of portfolio value over 90 days.

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

Ford Motor  vs.  Kumba Iron Ore

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

Kumba Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kumba Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Kumba Iron 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 Kumba Iron

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

The idea behind Ford Motor and Kumba Iron Ore 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.