Correlation Between Ford and Arkema SA

Can any of the company-specific risk be diversified away by investing in both Ford and Arkema 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 Arkema 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 Arkema SA ADR, you can compare the effects of market volatilities on Ford and Arkema 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 Arkema SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Arkema SA.

Diversification Opportunities for Ford and Arkema SA

-0.27

Correlation Coefficient

Ford  Arkema SA

Very good diversification

The 3 months correlation between Ford and Arkema is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Arkema SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA ADR 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 Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA ADR has no effect on the direction of Ford i.e., Ford and Arkema SA go up and down completely randomly.

Pair Corralation between Ford and Arkema SA

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.51 times more return on investment than Arkema SA. However, Ford is 1.51 times more volatile than Arkema SA ADR. It trades about 0.09 of its potential returns per unit of risk. Arkema SA ADR is currently generating about -0.03 per unit of risk. If you would invest  1,244  in Ford Motor on January 26, 2024 and sell it today you would earn a total of  51.00  from holding Ford Motor or generate 4.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Arkema SA ADR

Ford Motor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

Arkema SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkema SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ford and Arkema SA

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

The idea behind Ford Motor and Arkema SA ADR 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.