Correlation Between GM and Faraday Technology

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

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

Diversification Opportunities for GM and Faraday Technology

-0.35

Correlation Coefficient

GM  Faraday Technology

Very good diversification

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

Pair Corralation between GM and Faraday Technology

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Faraday Technology. In addition to that, GM is 1.04 times more volatile than Faraday Technology Corp. It trades about -0.03 of its total potential returns per unit of risk. Faraday Technology Corp is currently generating about 0.01 per unit of volatility. If you would invest  24,550  in Faraday Technology Corp on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Faraday Technology Corp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.67%
Values	Daily Returns

General Motors  vs.  Faraday Technology Corp

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Faraday Technology Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Faraday Technology Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Faraday Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with GM and Faraday Technology

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

The idea behind General Motors and Faraday Technology Corp 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 Valuation module to check real value of public entities based on technical and fundamental data.