Correlation Between GM and FF Australia

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

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

Diversification Opportunities for GM and FF Australia

0.26

Correlation Coefficient

GM  FF Australia

Modest diversification

The 3 months correlation between GM and FPGK is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FF Australia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FF Australia 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 FF Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FF Australia has no effect on the direction of GM i.e., GM and FF Australia go up and down completely randomly.

Pair Corralation between GM and FF Australia

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.8 times more return on investment than FF Australia. However, GM is 1.8 times more volatile than FF Australia. It trades about 0.12 of its potential returns per unit of risk. FF Australia is currently generating about 0.04 per unit of risk. If you would invest  2,873  in General Motors on October 1, 2024 and sell it today you would earn a total of  2,555  from holding General Motors or generate 88.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.78%
Values	Daily Returns

General Motors  vs.  FF Australia

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.

FF Australia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FF Australia has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound technical and fundamental indicators, FF Australia is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and FF Australia

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

The idea behind General Motors and FF Australia 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.