Correlation Between GM and Fundamental Large

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

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

Diversification Opportunities for GM and Fundamental Large

0.61

Correlation Coefficient

GM  Fundamental Large

Poor diversification

The 3 months correlation between GM and Fundamental is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Large Cap 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 Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of GM i.e., GM and Fundamental Large go up and down completely randomly.

Pair Corralation between GM and Fundamental Large

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Fundamental Large. In addition to that, GM is 2.85 times more volatile than Fundamental Large Cap. It trades about -0.26 of its total potential returns per unit of risk. Fundamental Large Cap is currently generating about -0.13 per unit of volatility. If you would invest  6,276  in Fundamental Large Cap on September 24, 2024 and sell it today you would lose (133.00) from holding Fundamental Large Cap or give up 2.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Fundamental Large Cap

General Motors

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fundamental Large Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fundamental Large 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 Fundamental Large

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

The idea behind General Motors and Fundamental Large Cap 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.