Correlation Between GM and Federated Gov

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

Diversification Opportunities for GM and Federated Gov

-0.63

Correlation Coefficient

GM  Federated Gov

Excellent diversification

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

Pair Corralation between GM and Federated Gov

Allowing for the 90-day total investment horizon General Motors is expected to generate 14.33 times more return on investment than Federated Gov. However, GM is 14.33 times more volatile than Federated Gov Sec. It trades about 0.06 of its potential returns per unit of risk. Federated Gov Sec is currently generating about 0.1 per unit of risk. If you would invest  3,609  in General Motors on October 3, 2024 and sell it today you would earn a total of  1,718  from holding General Motors or generate 47.6% 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 Gov Sec

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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 Gov Sec

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind General Motors and Federated Gov Sec 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.