Correlation Between GM and FDO INV

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

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

Diversification Opportunities for GM and FDO INV

-0.55

Correlation Coefficient

GM  FDO INV

Excellent diversification

The 3 months correlation between GM and FDO is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FDO INV IMOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FDO INV IMOB 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 FDO INV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FDO INV IMOB has no effect on the direction of GM i.e., GM and FDO INV go up and down completely randomly.

Pair Corralation between GM and FDO INV

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.58 times more return on investment than FDO INV. However, General Motors is 1.73 times less risky than FDO INV. It trades about -0.03 of its potential returns per unit of risk. FDO INV IMOB is currently generating about -0.02 per unit of risk. If you would invest  5,337  in General Motors on December 24, 2024 and sell it today you would lose (357.00) from holding General Motors or give up 6.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

General Motors  vs.  FDO INV IMOB

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

FDO INV IMOB

Risk-Adjusted Performance

Very Weak

Over the last 90 days FDO INV IMOB has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong fundamental indicators, FDO INV 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 FDO INV

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

The idea behind General Motors and FDO INV IMOB 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.