Correlation Between GM and Frontken Bhd

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

By analyzing existing cross correlation between General Motors and Frontken Bhd, you can compare the effects of market volatilities on GM and Frontken Bhd 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 Frontken Bhd. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Frontken Bhd.

Diversification Opportunities for GM and Frontken Bhd

0.6

Correlation Coefficient

GM  Frontken Bhd

Poor diversification

The 3 months correlation between GM and Frontken is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Frontken Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontken Bhd 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 Frontken Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontken Bhd has no effect on the direction of GM i.e., GM and Frontken Bhd go up and down completely randomly.

Pair Corralation between GM and Frontken Bhd

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.99 times more return on investment than Frontken Bhd. However, General Motors is 1.01 times less risky than Frontken Bhd. It trades about 0.05 of its potential returns per unit of risk. Frontken Bhd is currently generating about 0.01 per unit of risk. If you would invest  3,906  in General Motors on December 2, 2024 and sell it today you would earn a total of  1,007  from holding General Motors or generate 25.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.38%
Values	Daily Returns

General Motors  vs.  Frontken Bhd

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.

Frontken Bhd

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frontken Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with GM and Frontken Bhd

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

The idea behind General Motors and Frontken Bhd 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.