Correlation Between GM and Frost Kempner

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

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

Diversification Opportunities for GM and Frost Kempner

0.51

Correlation Coefficient

GM  Frost Kempner

Very weak diversification

The 3 months correlation between GM and Frost is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Frost Kempner Multi Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frost Kempner Multi 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 Frost Kempner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frost Kempner Multi has no effect on the direction of GM i.e., GM and Frost Kempner go up and down completely randomly.

Pair Corralation between GM and Frost Kempner

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Frost Kempner. In addition to that, GM is 3.94 times more volatile than Frost Kempner Multi Cap. It trades about -0.12 of its total potential returns per unit of risk. Frost Kempner Multi Cap is currently generating about 0.01 per unit of volatility. If you would invest  1,172  in Frost Kempner Multi Cap on December 5, 2024 and sell it today you would earn a total of  3.00  from holding Frost Kempner Multi Cap or generate 0.26% return on investment over 90 days.

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

General Motors  vs.  Frost Kempner Multi Cap

General Motors

Risk-Adjusted Performance

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Frost Kempner Multi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frost Kempner Multi Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with GM and Frost Kempner

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

The idea behind General Motors and Frost Kempner Multi 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.