Correlation Between Ford and New Horizon

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

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

Diversification Opportunities for Ford and New Horizon

0.11

Correlation Coefficient

Ford  New Horizon

Average diversification

The 3 months correlation between Ford and New is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and New Horizon Aircraft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Horizon Aircraft 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 New Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Horizon Aircraft has no effect on the direction of Ford i.e., Ford and New Horizon go up and down completely randomly.

Pair Corralation between Ford and New Horizon

Taking into account the 90-day investment horizon Ford is expected to generate 9.16 times less return on investment than New Horizon. But when comparing it to its historical volatility, Ford Motor is 6.93 times less risky than New Horizon. It trades about 0.17 of its potential returns per unit of risk. New Horizon Aircraft is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  29.00  in New Horizon Aircraft on August 31, 2024 and sell it today you would earn a total of  20.00  from holding New Horizon Aircraft or generate 68.97% return on investment over 90 days.

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

Ford Motor  vs.  New Horizon Aircraft

Ford Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) 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.

New Horizon Aircraft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Horizon Aircraft has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Ford and New Horizon

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

The idea behind Ford Motor and New Horizon Aircraft 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.