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
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Northern is 0.54. 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 385.31 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Ford Motor is 43.43 times less risky than Northern Lights. It trades about 0.01 of its potential returns per unit of risk. Northern Lights is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 0.00 in Northern Lights on August 30, 2024 and sell it today you would earn a total of 2,771 from holding Northern Lights or generate 9.223372036854776E16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 20.2% |
| Values | Daily Returns |
Ford Motor vs. Northern Lights
Performance |
| Timeline |
| Ford Motor |
| Northern Lights |
Ford and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
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.| Northern Lights vs. Davis Select International | Northern Lights vs. Tidal ETF Trust | Northern Lights vs. Principal Value ETF | Northern Lights vs. WisdomTree Emerging Markets |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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