Correlation Between GM and First State

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

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

Diversification Opportunities for GM and First State

0.85

Correlation Coefficient

GM  First State

Very poor diversification

The 3 months correlation between GM and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and First State Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First State Financial 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 First State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First State Financial has no effect on the direction of GM i.e., GM and First State go up and down completely randomly.

Pair Corralation between GM and First State

If you would invest  4.47  in First State Financial on September 13, 2024 and sell it today you would earn a total of  0.00  from holding First State Financial or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	4.76%
Values	Daily Returns

General Motors  vs.  First State Financial

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

First State Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First State Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First State is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and First State

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

The idea behind General Motors and First State Financial 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.