Correlation Between Ford and China International

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

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

Diversification Opportunities for Ford and China International

0.49

Correlation Coefficient

Ford  China International

Very weak diversification

The 3 months correlation between Ford and China is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and China International Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China International 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 China International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China International has no effect on the direction of Ford i.e., Ford and China International go up and down completely randomly.

Pair Corralation between Ford and China International

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.41 times more return on investment than China International. However, Ford Motor is 2.42 times less risky than China International. It trades about -0.14 of its potential returns per unit of risk. China International Marine is currently generating about -0.15 per unit of risk. If you would invest  999.00  in Ford Motor on October 15, 2024 and sell it today you would lose (34.00) from holding Ford Motor or give up 3.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.89%
Values	Daily Returns

Ford Motor  vs.  China International Marine

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.

China International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China International Marine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ford and China International

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

The idea behind Ford Motor and China International Marine 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.