Correlation Between Ford and Sonaecom SGPS

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

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

Diversification Opportunities for Ford and Sonaecom SGPS

-0.15

Correlation Coefficient

Ford  Sonaecom SGPS

Good diversification

The 3 months correlation between Ford and Sonaecom is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Sonaecom SGPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonaecom SGPS 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 Sonaecom SGPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonaecom SGPS has no effect on the direction of Ford i.e., Ford and Sonaecom SGPS go up and down completely randomly.

Pair Corralation between Ford and Sonaecom SGPS

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.98 times more return on investment than Sonaecom SGPS. However, Ford Motor is 1.02 times less risky than Sonaecom SGPS. It trades about -0.16 of its potential returns per unit of risk. Sonaecom SGPS is currently generating about -0.18 per unit of risk. If you would invest  1,101  in Ford Motor on September 16, 2024 and sell it today you would lose (62.00) from holding Ford Motor or give up 5.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ford Motor  vs.  Sonaecom SGPS

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.

Sonaecom SGPS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonaecom SGPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental 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 Sonaecom SGPS

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

The idea behind Ford Motor and Sonaecom SGPS 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.