Correlation Between Ford and LSK

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

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

Diversification Opportunities for Ford and LSK

0.3

Correlation Coefficient

Ford  LSK

Weak diversification

The 3 months correlation between Ford and LSK is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LSK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LSK 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 LSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LSK has no effect on the direction of Ford i.e., Ford and LSK go up and down completely randomly.

Pair Corralation between Ford and LSK

Taking into account the 90-day investment horizon Ford is expected to generate 14.24 times less return on investment than LSK. But when comparing it to its historical volatility, Ford Motor is 3.17 times less risky than LSK. It trades about 0.01 of its potential returns per unit of risk. LSK is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  73.00  in LSK on September 25, 2024 and sell it today you would earn a total of  22.00  from holding LSK or generate 30.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	60.28%
Values	Daily Returns

Ford Motor  vs.  LSK

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.

LSK

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LSK are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, LSK may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and LSK

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

The idea behind Ford Motor and LSK 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.