Correlation Between Ford and Connecticut Light

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

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

Diversification Opportunities for Ford and Connecticut Light

-0.09

Correlation Coefficient

Ford  Connecticut Light

Good diversification

The 3 months correlation between Ford and Connecticut is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light 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 Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Ford i.e., Ford and Connecticut Light go up and down completely randomly.

Pair Corralation between Ford and Connecticut Light

Taking into account the 90-day investment horizon Ford is expected to generate 10.24 times less return on investment than Connecticut Light. But when comparing it to its historical volatility, Ford Motor is 4.61 times less risky than Connecticut Light. It trades about 0.02 of its potential returns per unit of risk. The Connecticut Light is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,540  in The Connecticut Light on September 12, 2024 and sell it today you would lose (170.00) from holding The Connecticut Light or give up 3.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Ford Motor  vs.  The Connecticut Light

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Connecticut Light

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical indicators, Connecticut Light reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Connecticut Light

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

The idea behind Ford Motor and The Connecticut Light 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.