Correlation Between Ford and Nippon Light

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

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

Diversification Opportunities for Ford and Nippon Light

-0.37

Correlation Coefficient

Ford  Nippon Light

Very good diversification

The 3 months correlation between Ford and Nippon is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Nippon Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Light Metal 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 Nippon Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Light Metal has no effect on the direction of Ford i.e., Ford and Nippon Light go up and down completely randomly.

Pair Corralation between Ford and Nippon Light

Taking into account the 90-day investment horizon Ford Motor is not expected to generate positive returns. Moreover, Ford is 1.27 times more volatile than Nippon Light Metal. It trades away all of its potential returns to assume current level of volatility. Nippon Light Metal is currently generating about 0.06 per unit of risk. If you would invest  940.00  in Nippon Light Metal on December 11, 2024 and sell it today you would earn a total of  50.00  from holding Nippon Light Metal or generate 5.32% return on investment over 90 days.

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

Ford Motor  vs.  Nippon Light Metal

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 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.

Nippon Light Metal

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Light Metal are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nippon Light may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ford and Nippon Light

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

The idea behind Ford Motor and Nippon Light Metal 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.