Correlation Between Ford and Novartis

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

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

Diversification Opportunities for Ford and Novartis

-0.76

Correlation Coefficient

Ford  Novartis

Pay attention - limited upside

The 3 months correlation between Ford and Novartis is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR 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 Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG ADR has no effect on the direction of Ford i.e., Ford and Novartis go up and down completely randomly.

Pair Corralation between Ford and Novartis

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.95 times more return on investment than Novartis. However, Ford is 1.95 times more volatile than Novartis AG ADR. It trades about 0.13 of its potential returns per unit of risk. Novartis AG ADR is currently generating about -0.08 per unit of risk. If you would invest  1,104  in Ford Motor on January 25, 2024 and sell it today you would earn a total of  190.00  from holding Ford Motor or generate 17.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Novartis AG ADR

Ford Motor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford reported solid returns over the last few months and may actually be approaching a breakup point.

Novartis AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Novartis is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ford and Novartis

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

The idea behind Ford Motor and Novartis AG ADR 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.