Correlation Between Ford and NORTHERN

Can any of the company-specific risk be diversified away by investing in both Ford and NORTHERN 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 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 TRUST PORATION, you can compare the effects of market volatilities on Ford and NORTHERN 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and NORTHERN.

Diversification Opportunities for Ford and NORTHERN

0.53

Correlation Coefficient

Ford  NORTHERN

Very weak diversification

The 3 months correlation between Ford and NORTHERN is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and NORTHERN TRUST PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHERN TRUST PORATION 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHERN TRUST PORATION has no effect on the direction of Ford i.e., Ford and NORTHERN go up and down completely randomly.

Pair Corralation between Ford and NORTHERN

Taking into account the 90-day investment horizon Ford Motor is expected to generate 3.02 times more return on investment than NORTHERN. However, Ford is 3.02 times more volatile than NORTHERN TRUST PORATION. It trades about -0.02 of its potential returns per unit of risk. NORTHERN TRUST PORATION is currently generating about -0.19 per unit of risk. If you would invest  1,042  in Ford Motor on September 30, 2024 and sell it today you would lose (39.00) from holding Ford Motor or give up 3.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Ford Motor  vs.  NORTHERN TRUST PORATION

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 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.

NORTHERN TRUST PORATION

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORTHERN TRUST PORATION has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NORTHERN TRUST PORATION investors.

Pair Trading with Ford and NORTHERN

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

The idea behind Ford Motor and NORTHERN TRUST PORATION 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.