Correlation Between Ford and North Star

Can any of the company-specific risk be diversified away by investing in both Ford and North Star 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 Star 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 Star Opportunity, you can compare the effects of market volatilities on Ford and North Star 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 Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and North Star.

Diversification Opportunities for Ford and North Star

0.7

Correlation Coefficient

Ford  North Star

Poor diversification

The 3 months correlation between Ford and North is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and North Star Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Star Opportunity 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 Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Star Opportunity has no effect on the direction of Ford i.e., Ford and North Star go up and down completely randomly.

Pair Corralation between Ford and North Star

Taking into account the 90-day investment horizon Ford is expected to generate 1.5 times less return on investment than North Star. In addition to that, Ford is 2.89 times more volatile than North Star Opportunity. It trades about 0.01 of its total potential returns per unit of risk. North Star Opportunity is currently generating about 0.05 per unit of volatility. If you would invest  1,449  in North Star Opportunity on September 20, 2024 and sell it today you would earn a total of  256.00  from holding North Star Opportunity or generate 17.67% return on investment over 90 days.

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

Ford Motor  vs.  North Star Opportunity

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.

North Star Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Star Opportunity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, North Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and North Star

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

The idea behind Ford Motor and North Star Opportunity 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.