Correlation Between GM and FDC International
Can any of the company-specific risk be diversified away by investing in both GM and FDC International 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 FDC International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and FDC International Hotels, you can compare the effects of market volatilities on GM and FDC International 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 FDC International. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and FDC International.
Diversification Opportunities for GM and FDC International
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and FDC is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FDC International Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FDC International Hotels 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 FDC International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FDC International Hotels has no effect on the direction of GM i.e., GM and FDC International go up and down completely randomly.
Pair Corralation between GM and FDC International
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.34 times more return on investment than FDC International. However, GM is 2.34 times more volatile than FDC International Hotels. It trades about 0.07 of its potential returns per unit of risk. FDC International Hotels is currently generating about 0.09 per unit of risk. If you would invest 5,273 in General Motors on August 28, 2024 and sell it today you would earn a total of 206.00 from holding General Motors or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. FDC International Hotels
Performance |
| Timeline |
| General Motors |
| FDC International Hotels |
GM and FDC International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and FDC International
The main advantage of trading using opposite GM and FDC International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, FDC International 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 FDC International will offset losses from the drop in FDC International's long position.The idea behind General Motors and FDC International Hotels 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.| FDC International vs. Formosa International Hotels | FDC International vs. My Humble House | FDC International vs. Wanhwa Enterprise Co | FDC International vs. Gourmet Master Co |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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