Correlation Between Fator IFIX and General Dynamics

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

By analyzing existing cross correlation between Fator IFIX Fundo and General Dynamics, you can compare the effects of market volatilities on Fator IFIX and General Dynamics 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 Fator IFIX with a short position of General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fator IFIX and General Dynamics.

Diversification Opportunities for Fator IFIX and General Dynamics

-0.33

Correlation Coefficient

Fator IFIX  General Dynamics

Very good diversification

The 3 months correlation between Fator and General is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fator IFIX Fundo and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Fator IFIX 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 Fator IFIX Fundo are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Fator IFIX i.e., Fator IFIX and General Dynamics go up and down completely randomly.

Pair Corralation between Fator IFIX and General Dynamics

Assuming the 90 days trading horizon Fator IFIX Fundo is expected to under-perform the General Dynamics. In addition to that, Fator IFIX is 1.06 times more volatile than General Dynamics. It trades about -0.23 of its total potential returns per unit of risk. General Dynamics is currently generating about -0.01 per unit of volatility. If you would invest  168,435  in General Dynamics on September 12, 2024 and sell it today you would lose (3,249) from holding General Dynamics or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Fator IFIX Fundo  vs.  General Dynamics

Fator IFIX Fundo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fator IFIX Fundo has generated negative risk-adjusted returns adding no value to fund investors. Despite weak performance in the last few months, the Fund's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, General Dynamics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fator IFIX and General Dynamics

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

The idea behind Fator IFIX Fundo and General Dynamics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.