Correlation Between GM and Focus Media

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

By analyzing existing cross correlation between General Motors and Focus Media Information, you can compare the effects of market volatilities on GM and Focus Media 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 GM with a short position of Focus Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Focus Media.

Diversification Opportunities for GM and Focus Media

0.35

Correlation Coefficient

GM  Focus Media

Weak diversification

The 3 months correlation between GM and Focus is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Focus Media Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Media Information and GM 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 General Motors are associated (or correlated) with Focus Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Media Information has no effect on the direction of GM i.e., GM and Focus Media go up and down completely randomly.

Pair Corralation between GM and Focus Media

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Focus Media. In addition to that, GM is 1.81 times more volatile than Focus Media Information. It trades about -0.07 of its total potential returns per unit of risk. Focus Media Information is currently generating about 0.03 per unit of volatility. If you would invest  693.00  in Focus Media Information on December 28, 2024 and sell it today you would earn a total of  12.00  from holding Focus Media Information or generate 1.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

General Motors  vs.  Focus Media Information

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Focus Media Information

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Focus Media Information are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Focus Media is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Focus Media

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

The idea behind General Motors and Focus Media Information 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.