Correlation Between GM and Faes Farma

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

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

Diversification Opportunities for GM and Faes Farma

-0.33

Correlation Coefficient

GM  Faes Farma

Very good diversification

The 3 months correlation between GM and Faes is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Faes Farma SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faes Farma SA 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 Faes Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faes Farma SA has no effect on the direction of GM i.e., GM and Faes Farma go up and down completely randomly.

Pair Corralation between GM and Faes Farma

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.09 times more return on investment than Faes Farma. However, GM is 2.09 times more volatile than Faes Farma SA. It trades about 0.04 of its potential returns per unit of risk. Faes Farma SA is currently generating about 0.02 per unit of risk. If you would invest  3,850  in General Motors on October 22, 2024 and sell it today you would earn a total of  1,247  from holding General Motors or generate 32.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.61%
Values	Daily Returns

General Motors  vs.  Faes Farma SA

General Motors

Risk-Adjusted Performance

0 of 100

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.

Faes Farma SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Faes Farma SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with GM and Faes Farma

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

The idea behind General Motors and Faes Farma SA 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.