Correlation Between Ford and Novo Nordisk

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

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

Diversification Opportunities for Ford and Novo Nordisk

-0.25

Correlation Coefficient

Ford  Novo Nordisk

Very good diversification

The 3 months correlation between Ford and Novo is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Novo Nordisk AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novo Nordisk AS 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 Novo Nordisk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novo Nordisk AS has no effect on the direction of Ford i.e., Ford and Novo Nordisk go up and down completely randomly.

Pair Corralation between Ford and Novo Nordisk

Taking into account the 90-day investment horizon Ford is expected to generate 5.83 times less return on investment than Novo Nordisk. In addition to that, Ford is 1.21 times more volatile than Novo Nordisk AS. It trades about 0.01 of its total potential returns per unit of risk. Novo Nordisk AS is currently generating about 0.06 per unit of volatility. If you would invest  45,354  in Novo Nordisk AS on September 3, 2024 and sell it today you would earn a total of  30,376  from holding Novo Nordisk AS or generate 66.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Ford Motor  vs.  Novo Nordisk AS

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Novo Nordisk AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Nordisk AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ford and Novo Nordisk

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

The idea behind Ford Motor and Novo Nordisk AS 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.