Correlation Between GM and Fam Value

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

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

Diversification Opportunities for GM and Fam Value

0.53

Correlation Coefficient

GM  Fam Value

Very weak diversification

The 3 months correlation between GM and Fam is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fam Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Value Fund 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 Fam Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Value Fund has no effect on the direction of GM i.e., GM and Fam Value go up and down completely randomly.

Pair Corralation between GM and Fam Value

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Fam Value. In addition to that, GM is 1.71 times more volatile than Fam Value Fund. It trades about -0.08 of its total potential returns per unit of risk. Fam Value Fund is currently generating about -0.13 per unit of volatility. If you would invest  10,981  in Fam Value Fund on October 22, 2024 and sell it today you would lose (751.00) from holding Fam Value Fund or give up 6.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

General Motors  vs.  Fam Value Fund

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.

Fam Value Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fam Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fam Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Fam Value

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

The idea behind General Motors and Fam Value Fund 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.