Correlation Between GM and Federated Mdt

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

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

Diversification Opportunities for GM and Federated Mdt

0.83

Correlation Coefficient

GM  Federated Mdt

Very poor diversification

The 3 months correlation between GM and Federated is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Federated Mdt Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Mdt Mid 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 Federated Mdt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Mdt Mid has no effect on the direction of GM i.e., GM and Federated Mdt go up and down completely randomly.

Pair Corralation between GM and Federated Mdt

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.8 times more return on investment than Federated Mdt. However, General Motors is 1.25 times less risky than Federated Mdt. It trades about -0.12 of its potential returns per unit of risk. Federated Mdt Mid Cap is currently generating about -0.18 per unit of risk. If you would invest  5,538  in General Motors on September 28, 2024 and sell it today you would lose (187.00) from holding General Motors or give up 3.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Federated Mdt Mid Cap

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

Federated Mdt Mid

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Mdt Mid Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Federated Mdt may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Federated Mdt

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

The idea behind General Motors and Federated Mdt Mid Cap 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.