Correlation Between Ford and North European

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

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

Diversification Opportunities for Ford and North European

-0.37

Correlation Coefficient

Ford  North European

Very good diversification

The 3 months correlation between Ford and North is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European Oil 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 North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of Ford i.e., Ford and North European go up and down completely randomly.

Pair Corralation between Ford and North European

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.6 times more return on investment than North European. However, Ford Motor is 1.66 times less risky than North European. It trades about 0.01 of its potential returns per unit of risk. North European Oil is currently generating about -0.04 per unit of risk. If you would invest  1,148  in Ford Motor on September 3, 2024 and sell it today you would lose (50.00) from holding Ford Motor or give up 4.36% of portfolio value over 90 days.

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

Ford Motor  vs.  North European Oil

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

North European Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North European Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Ford and North European

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

The idea behind Ford Motor and North European Oil 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.