Correlation Between GM and Fidelity Natural

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

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

Diversification Opportunities for GM and Fidelity Natural

0.3

Correlation Coefficient

GM  Fidelity Natural

Weak diversification

The 3 months correlation between GM and Fidelity is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fidelity Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Natural Res 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 Fidelity Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Natural Res has no effect on the direction of GM i.e., GM and Fidelity Natural go up and down completely randomly.

Pair Corralation between GM and Fidelity Natural

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Fidelity Natural. In addition to that, GM is 2.11 times more volatile than Fidelity Natural Resources. It trades about -0.08 of its total potential returns per unit of risk. Fidelity Natural Resources is currently generating about -0.08 per unit of volatility. If you would invest  4,527  in Fidelity Natural Resources on December 3, 2024 and sell it today you would lose (226.00) from holding Fidelity Natural Resources or give up 4.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  Fidelity Natural Resources

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.

Fidelity Natural Res

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity Natural 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 Fidelity Natural

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

The idea behind General Motors and Fidelity Natural Resources 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.