Correlation Between GM and Fuh Hwa
Can any of the company-specific risk be diversified away by investing in both GM and Fuh Hwa 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 Fuh Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Fuh Hwa Daily, you can compare the effects of market volatilities on GM and Fuh Hwa 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 Fuh Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Fuh Hwa.
Diversification Opportunities for GM and Fuh Hwa
Pay attention - limited upside
The 3 months correlation between GM and Fuh is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fuh Hwa Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuh Hwa Daily 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 Fuh Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuh Hwa Daily has no effect on the direction of GM i.e., GM and Fuh Hwa go up and down completely randomly.
Pair Corralation between GM and Fuh Hwa
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Fuh Hwa. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.45 times less risky than Fuh Hwa. The stock trades about -0.1 of its potential returns per unit of risk. The Fuh Hwa Daily is currently generating about 0.5 of returns per unit of risk over similar time horizon. If you would invest 1,216 in Fuh Hwa Daily on December 4, 2024 and sell it today you would earn a total of 386.00 from holding Fuh Hwa Daily or generate 31.74% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 95.24% |
Values | Daily Returns |
General Motors vs. Fuh Hwa Daily
Performance |
Timeline |
General Motors |
Fuh Hwa Daily |
GM and Fuh Hwa Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and Fuh Hwa
The main advantage of trading using opposite GM and Fuh Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Fuh Hwa 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 Fuh Hwa will offset losses from the drop in Fuh Hwa's long position.The idea behind General Motors and Fuh Hwa Daily 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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