Correlation Between Ford and Verona Pharma

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

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

Diversification Opportunities for Ford and Verona Pharma

0.45

Correlation Coefficient

Ford  Verona Pharma

Very weak diversification

The 3 months correlation between Ford and Verona is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Verona Pharma PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verona Pharma PLC 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 Verona Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verona Pharma PLC has no effect on the direction of Ford i.e., Ford and Verona Pharma go up and down completely randomly.

Pair Corralation between Ford and Verona Pharma

Taking into account the 90-day investment horizon Ford is expected to generate 10.03 times less return on investment than Verona Pharma. But when comparing it to its historical volatility, Ford Motor is 1.44 times less risky than Verona Pharma. It trades about 0.03 of its potential returns per unit of risk. Verona Pharma PLC is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,721  in Verona Pharma PLC on September 2, 2024 and sell it today you would earn a total of  1,242  from holding Verona Pharma PLC or generate 45.64% return on investment over 90 days.

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

Ford Motor  vs.  Verona Pharma PLC

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

Verona Pharma PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Verona Pharma

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

The idea behind Ford Motor and Verona Pharma PLC 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.