Correlation Between Ford and National Aerospace

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

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

Diversification Opportunities for Ford and National Aerospace

0.01

Correlation Coefficient

Ford  National Aerospace

Significant diversification

The 3 months correlation between Ford and National is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and National Aerospace Fasteners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Aerospace 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 National Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Aerospace has no effect on the direction of Ford i.e., Ford and National Aerospace go up and down completely randomly.

Pair Corralation between Ford and National Aerospace

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the National Aerospace. In addition to that, Ford is 1.58 times more volatile than National Aerospace Fasteners. It trades about -0.04 of its total potential returns per unit of risk. National Aerospace Fasteners is currently generating about -0.06 per unit of volatility. If you would invest  10,350  in National Aerospace Fasteners on September 23, 2024 and sell it today you would lose (1,370) from holding National Aerospace Fasteners or give up 13.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.22%
Values	Daily Returns

Ford Motor  vs.  National Aerospace Fasteners

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.

National Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Aerospace Fasteners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, National Aerospace is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ford and National Aerospace

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

The idea behind Ford Motor and National Aerospace Fasteners 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.