Correlation Between GM and Firefinch
Can any of the company-specific risk be diversified away by investing in both GM and Firefinch 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 Firefinch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Firefinch Limited, you can compare the effects of market volatilities on GM and Firefinch 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 Firefinch. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Firefinch.
Diversification Opportunities for GM and Firefinch
Poor diversification
The 3 months correlation between GM and Firefinch is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Firefinch Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firefinch Limited 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 Firefinch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firefinch Limited has no effect on the direction of GM i.e., GM and Firefinch go up and down completely randomly.
Pair Corralation between GM and Firefinch
If you would invest 5,273 in General Motors on August 29, 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 Together |
| Strength | Significant |
| Accuracy | 4.35% |
| Values | Daily Returns |
General Motors vs. Firefinch Limited
Performance |
| Timeline |
| General Motors |
| Firefinch Limited |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
GM and Firefinch Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Firefinch
The main advantage of trading using opposite GM and Firefinch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Firefinch 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 Firefinch will offset losses from the drop in Firefinch's long position.The idea behind General Motors and Firefinch Limited 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.| Firefinch vs. Newmont Goldcorp Corp | Firefinch vs. Pan American Silver | Firefinch vs. Agnico Eagle Mines | Firefinch vs. Kinross Gold |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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