Correlation Between Ford and Northern Mid
Can any of the company-specific risk be diversified away by investing in both Ford and Northern Mid 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 Mid 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 Mid Cap, you can compare the effects of market volatilities on Ford and Northern Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Northern Mid.
Diversification Opportunities for Ford and Northern Mid
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Ford and Northern is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Northern Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Mid Cap 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Mid Cap has no effect on the direction of Ford i.e., Ford and Northern Mid go up and down completely randomly.
Pair Corralation between Ford and Northern Mid
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Northern Mid. In addition to that, Ford is 2.78 times more volatile than Northern Mid Cap. It trades about -0.09 of its total potential returns per unit of risk. Northern Mid Cap is currently generating about 0.2 per unit of volatility. If you would invest 2,081 in Northern Mid Cap on November 8, 2024 and sell it today you would earn a total of 74.00 from holding Northern Mid Cap or generate 3.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Northern Mid Cap
Performance |
| Timeline |
| Ford Motor |
| Northern Mid Cap |
Ford and Northern Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Northern Mid
The main advantage of trading using opposite Ford and Northern Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Northern Mid 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 Mid will offset losses from the drop in Northern Mid's long position.The idea behind Ford Motor and Northern Mid Cap 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 Mid vs. Northern Small Cap | Northern Mid vs. Northern International Equity | Northern Mid vs. Northern Stock Index | Northern Mid vs. Northern 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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