Correlation Between GM and FREEPORT

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

By analyzing existing cross correlation between General Motors and FREEPORT MCMORAN INC 525, you can compare the effects of market volatilities on GM and FREEPORT 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 FREEPORT. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and FREEPORT.

Diversification Opportunities for GM and FREEPORT

-0.06

Correlation Coefficient

GM  FREEPORT

Good diversification

The 3 months correlation between GM and FREEPORT is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FREEPORT MCMORAN INC 525 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FREEPORT MCMORAN INC 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 FREEPORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FREEPORT MCMORAN INC has no effect on the direction of GM i.e., GM and FREEPORT go up and down completely randomly.

Pair Corralation between GM and FREEPORT

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the FREEPORT. In addition to that, GM is 5.33 times more volatile than FREEPORT MCMORAN INC 525. It trades about -0.15 of its total potential returns per unit of risk. FREEPORT MCMORAN INC 525 is currently generating about -0.11 per unit of volatility. If you would invest  10,070  in FREEPORT MCMORAN INC 525 on September 20, 2024 and sell it today you would lose (120.00) from holding FREEPORT MCMORAN INC 525 or give up 1.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  FREEPORT MCMORAN INC 525

General Motors

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

FREEPORT MCMORAN INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FREEPORT MCMORAN INC 525 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FREEPORT is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and FREEPORT

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

The idea behind General Motors and FREEPORT MCMORAN INC 525 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.