Correlation Between Ford and National Grid

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

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

Diversification Opportunities for Ford and National Grid

0.57

Correlation Coefficient

Ford  National Grid

Very weak diversification

The 3 months correlation between Ford and National is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of Ford i.e., Ford and National Grid go up and down completely randomly.

Pair Corralation between Ford and National Grid

Taking into account the 90-day investment horizon Ford is expected to generate 20.67 times less return on investment than National Grid. In addition to that, Ford is 1.26 times more volatile than National Grid plc. It trades about 0.0 of its total potential returns per unit of risk. National Grid plc is currently generating about 0.02 per unit of volatility. If you would invest  4,782  in National Grid plc on October 13, 2024 and sell it today you would earn a total of  718.00  from holding National Grid plc or generate 15.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

Ford Motor  vs.  National Grid plc

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.

National Grid plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ford and National Grid

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

The idea behind Ford Motor and National Grid 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.