Correlation Between Ford and SHIN ETSU

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

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

Diversification Opportunities for Ford and SHIN ETSU

-0.28

Correlation Coefficient

Ford  SHIN ETSU

Very good diversification

The 3 months correlation between Ford and SHIN is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SHIN ETSU CHEMICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHIN ETSU CHEMICAL 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 SHIN ETSU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHIN ETSU CHEMICAL has no effect on the direction of Ford i.e., Ford and SHIN ETSU go up and down completely randomly.

Pair Corralation between Ford and SHIN ETSU

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.06 times more return on investment than SHIN ETSU. However, Ford is 1.06 times more volatile than SHIN ETSU CHEMICAL. It trades about -0.01 of its potential returns per unit of risk. SHIN ETSU CHEMICAL is currently generating about -0.06 per unit of risk. If you would invest  1,066  in Ford Motor on September 16, 2024 and sell it today you would lose (27.00) from holding Ford Motor or give up 2.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Ford Motor  vs.  SHIN ETSU CHEMICAL

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.

SHIN ETSU CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SHIN ETSU CHEMICAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Ford and SHIN ETSU

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

The idea behind Ford Motor and SHIN ETSU CHEMICAL 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.