Correlation Between Ford and PERRIGO

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

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

Diversification Opportunities for Ford and PERRIGO

-0.3

Correlation Coefficient

Ford  PERRIGO

Very good diversification

The 3 months correlation between Ford and PERRIGO is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and PERRIGO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PERRIGO 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 PERRIGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PERRIGO has no effect on the direction of Ford i.e., Ford and PERRIGO go up and down completely randomly.

Pair Corralation between Ford and PERRIGO

Taking into account the 90-day investment horizon Ford is expected to generate 24.49 times less return on investment than PERRIGO. But when comparing it to its historical volatility, Ford Motor is 8.72 times less risky than PERRIGO. It trades about 0.01 of its potential returns per unit of risk. PERRIGO is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,638  in PERRIGO on September 23, 2024 and sell it today you would lose (2,571) from holding PERRIGO or give up 97.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.22%
Values	Daily Returns

Ford Motor  vs.  PERRIGO

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.

PERRIGO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PERRIGO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PERRIGO is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ford and PERRIGO

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

The idea behind Ford Motor and PERRIGO 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.