Correlation Between Ford and Nintendo

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

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

Diversification Opportunities for Ford and Nintendo

0.5

Correlation Coefficient

Ford  Nintendo

Very weak diversification

The 3 months correlation between Ford and Nintendo is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Nintendo Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nintendo 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 Nintendo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nintendo has no effect on the direction of Ford i.e., Ford and Nintendo go up and down completely randomly.

Pair Corralation between Ford and Nintendo

Taking into account the 90-day investment horizon Ford is expected to generate 5.87 times less return on investment than Nintendo. But when comparing it to its historical volatility, Ford Motor is 1.47 times less risky than Nintendo. It trades about 0.02 of its potential returns per unit of risk. Nintendo Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,170  in Nintendo Co on September 4, 2024 and sell it today you would earn a total of  190.00  from holding Nintendo Co or generate 16.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

Ford Motor  vs.  Nintendo Co

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

Nintendo

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nintendo Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nintendo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Nintendo

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

The idea behind Ford Motor and Nintendo Co 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.