Correlation Between Ford and Newtopia

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

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

Diversification Opportunities for Ford and Newtopia

-0.02

Correlation Coefficient

Ford  Newtopia

Good diversification

The 3 months correlation between Ford and Newtopia is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Newtopia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtopia 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 Newtopia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtopia has no effect on the direction of Ford i.e., Ford and Newtopia go up and down completely randomly.

Pair Corralation between Ford and Newtopia

Taking into account the 90-day investment horizon Ford is expected to generate 13.71 times less return on investment than Newtopia. But when comparing it to its historical volatility, Ford Motor is 9.97 times less risky than Newtopia. It trades about 0.05 of its potential returns per unit of risk. Newtopia is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.14  in Newtopia on December 25, 2024 and sell it today you would lose (0.09) from holding Newtopia or give up 64.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Ford Motor  vs.  Newtopia

Ford Motor

Risk-Adjusted Performance

Insignificant

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

Newtopia

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newtopia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Newtopia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Newtopia

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

The idea behind Ford Motor and Newtopia 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.