Correlation Between Ford and Perrigo Company

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

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

Diversification Opportunities for Ford and Perrigo Company

0.11

Correlation Coefficient

Ford  Perrigo Company

Average diversification

The 3 months correlation between Ford and Perrigo is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Perrigo Company PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perrigo Company 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 Perrigo Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perrigo Company has no effect on the direction of Ford i.e., Ford and Perrigo Company go up and down completely randomly.

Pair Corralation between Ford and Perrigo Company

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Perrigo Company. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.18 times less risky than Perrigo Company. The stock trades about -0.18 of its potential returns per unit of risk. The Perrigo Company PLC is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,175  in Perrigo Company PLC on February 8, 2024 and sell it today you would lose (160.00) from holding Perrigo Company PLC or give up 5.04% of portfolio value over 90 days.

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

Ford Motor  vs.  Perrigo Company PLC

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.

Perrigo Company

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Perrigo Company PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Perrigo Company is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ford and Perrigo Company

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

The idea behind Ford Motor and Perrigo Company PLC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.