Correlation Between GM and US FOODS

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

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

Diversification Opportunities for GM and US FOODS

0.71

Correlation Coefficient

GM  US FOODS

Poor diversification

The 3 months correlation between GM and UFH is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and US FOODS HOLDING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US FOODS HOLDING 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 US FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US FOODS HOLDING has no effect on the direction of GM i.e., GM and US FOODS go up and down completely randomly.

Pair Corralation between GM and US FOODS

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the US FOODS. In addition to that, GM is 2.11 times more volatile than US FOODS HOLDING. It trades about -0.23 of its total potential returns per unit of risk. US FOODS HOLDING is currently generating about -0.09 per unit of volatility. If you would invest  6,650  in US FOODS HOLDING on September 23, 2024 and sell it today you would lose (150.00) from holding US FOODS HOLDING or give up 2.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  US FOODS HOLDING

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) 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.

US FOODS HOLDING

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US FOODS HOLDING are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, US FOODS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and US FOODS

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

The idea behind General Motors and US FOODS HOLDING 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.