Correlation Between Ford and Northern Lights

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

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

Diversification Opportunities for Ford and Northern Lights

0.38

Correlation Coefficient

Ford  Northern Lights

Weak diversification

The 3 months correlation between Ford and Northern is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Ford i.e., Ford and Northern Lights go up and down completely randomly.

Pair Corralation between Ford and Northern Lights

Taking into account the 90-day investment horizon Ford is expected to generate 1.18 times less return on investment than Northern Lights. In addition to that, Ford is 4.88 times more volatile than Northern Lights. It trades about 0.04 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.22 per unit of volatility. If you would invest  2,857  in Northern Lights on December 3, 2024 and sell it today you would earn a total of  101.00  from holding Northern Lights or generate 3.54% return on investment over 90 days.

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

Ford Motor  vs.  Northern Lights

Ford Motor

Risk-Adjusted Performance

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.

Northern Lights

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Northern Lights is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and Northern Lights

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

The idea behind Ford Motor and Northern Lights 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.