Correlation Between GM and Farmers

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

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

Diversification Opportunities for GM and Farmers

-0.63

Correlation Coefficient

GM  Farmers

Excellent diversification

The 3 months correlation between GM and Farmers is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Farmers and Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers and Merchants 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 Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers and Merchants has no effect on the direction of GM i.e., GM and Farmers go up and down completely randomly.

Pair Corralation between GM and Farmers

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Farmers. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 3.54 times less risky than Farmers. The stock trades about -0.02 of its potential returns per unit of risk. The Farmers and Merchants is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,383  in Farmers and Merchants on September 27, 2024 and sell it today you would earn a total of  417.00  from holding Farmers and Merchants or generate 30.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Farmers and Merchants

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 8 (%) 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.

Farmers and Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers and Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Farmers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Farmers

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

The idea behind General Motors and Farmers and Merchants 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.