Correlation Between GM and Fairchem Organics

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

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

Diversification Opportunities for GM and Fairchem Organics

-0.8

Correlation Coefficient

GM  Fairchem Organics

Pay attention - limited upside

The 3 months correlation between GM and Fairchem is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics 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 Fairchem Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairchem Organics has no effect on the direction of GM i.e., GM and Fairchem Organics go up and down completely randomly.

Pair Corralation between GM and Fairchem Organics

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.5 times more return on investment than Fairchem Organics. However, General Motors is 2.0 times less risky than Fairchem Organics. It trades about 0.1 of its potential returns per unit of risk. Fairchem Organics Limited is currently generating about 0.04 per unit of risk. If you would invest  4,563  in General Motors on September 25, 2024 and sell it today you would earn a total of  618.00  from holding General Motors or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

General Motors  vs.  Fairchem Organics Limited

General Motors

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Fairchem Organics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fairchem Organics Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Fairchem Organics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Fairchem Organics

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

The idea behind General Motors and Fairchem Organics Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.