Correlation Between Ford and Renault SA

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

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

Diversification Opportunities for Ford and Renault SA

-0.22

Correlation Coefficient

Ford  Renault SA

Very good diversification

The 3 months correlation between Ford and Renault is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Renault SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renault SA 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 Renault SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renault SA has no effect on the direction of Ford i.e., Ford and Renault SA go up and down completely randomly.

Pair Corralation between Ford and Renault SA

Taking into account the 90-day investment horizon Ford is expected to generate 8.04 times less return on investment than Renault SA. But when comparing it to its historical volatility, Ford Motor is 1.41 times less risky than Renault SA. It trades about 0.01 of its potential returns per unit of risk. Renault SA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,280  in Renault SA on September 21, 2024 and sell it today you would earn a total of  1,580  from holding Renault SA or generate 48.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	63.84%
Values	Daily Returns

Ford Motor  vs.  Renault SA

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.

Renault SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renault SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Renault SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ford and Renault SA

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

The idea behind Ford Motor and Renault SA 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.