Correlation Between GM and Federated

Can any of the company-specific risk be diversified away by investing in both GM and Federated 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 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 U S, you can compare the effects of market volatilities on GM and Federated 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Federated.

Diversification Opportunities for GM and Federated

-0.78

Correlation Coefficient

GM  Federated

Pay attention - limited upside

The 3 months correlation between GM and Federated is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Federated U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated U S 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated U S has no effect on the direction of GM i.e., GM and Federated go up and down completely randomly.

Pair Corralation between GM and Federated

Allowing for the 90-day total investment horizon General Motors is expected to generate 11.76 times more return on investment than Federated. However, GM is 11.76 times more volatile than Federated U S. It trades about 0.14 of its potential returns per unit of risk. Federated U S is currently generating about -0.23 per unit of risk. If you would invest  4,474  in General Motors on September 30, 2024 and sell it today you would earn a total of  954.00  from holding General Motors or generate 21.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Federated U S

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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 U S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated U S has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated 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 Federated

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

The idea behind General Motors and Federated U S 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.