Correlation Between GM and Fabxx
Can any of the company-specific risk be diversified away by investing in both GM and Fabxx 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 Fabxx into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Fabxx, you can compare the effects of market volatilities on GM and Fabxx 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 Fabxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Fabxx.
Diversification Opportunities for GM and Fabxx
Very good diversification
The 3 months correlation between GM and Fabxx is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fabxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabxx 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 Fabxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabxx has no effect on the direction of GM i.e., GM and Fabxx go up and down completely randomly.
Pair Corralation between GM and Fabxx
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.31 times more return on investment than Fabxx. However, General Motors is 3.25 times less risky than Fabxx. It trades about 0.1 of its potential returns per unit of risk. Fabxx is currently generating about -0.12 per unit of risk. If you would invest 4,829 in General Motors on September 2, 2024 and sell it today you would earn a total of 730.00 from holding General Motors or generate 15.12% 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. Fabxx
Performance |
| Timeline |
| General Motors |
| Fabxx |
GM and Fabxx Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Fabxx
The main advantage of trading using opposite GM and Fabxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Fabxx 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 Fabxx will offset losses from the drop in Fabxx's long position.The idea behind General Motors and Fabxx 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.| Fabxx vs. Tax Managed Large Cap | Fabxx vs. Americafirst Large Cap | Fabxx vs. T Rowe Price | Fabxx vs. Qs Large Cap |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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