Correlation Between Ford and National Bank
Can any of the company-specific risk be diversified away by investing in both Ford and National Bank 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 Bank 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 Bank of, you can compare the effects of market volatilities on Ford and National Bank 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 Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and National Bank.
Diversification Opportunities for Ford and National Bank
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and National is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of Ford i.e., Ford and National Bank go up and down completely randomly.
Pair Corralation between Ford and National Bank
Taking into account the 90-day investment horizon Ford Motor is expected to generate 7.09 times more return on investment than National Bank. However, Ford is 7.09 times more volatile than National Bank of. It trades about 0.02 of its potential returns per unit of risk. National Bank of is currently generating about 0.03 per unit of risk. If you would invest 1,096 in Ford Motor on August 29, 2024 and sell it today you would earn a total of 14.00 from holding Ford Motor or generate 1.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
Ford Motor vs. National Bank of
Performance |
| Timeline |
| Ford Motor |
| National Bank |
Ford and National Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and National Bank
The main advantage of trading using opposite Ford and National Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, National Bank 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 Bank will offset losses from the drop in National Bank's long position.The idea behind Ford Motor and National Bank of 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.| National Bank vs. National Bank of | National Bank vs. National Bank of | National Bank vs. National Bank of | National Bank vs. Bank of Montreal |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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