Correlation Between GM and Federated High
Can any of the company-specific risk be diversified away by investing in both GM and Federated High 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 Federated High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Federated High Income, you can compare the effects of market volatilities on GM and Federated High 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 Federated High. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Federated High.
Diversification Opportunities for GM and Federated High
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Federated is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Federated High Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated High Income 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 Federated High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated High Income has no effect on the direction of GM i.e., GM and Federated High go up and down completely randomly.
Pair Corralation between GM and Federated High
Allowing for the 90-day total investment horizon General Motors is expected to generate 14.66 times more return on investment than Federated High. However, GM is 14.66 times more volatile than Federated High Income. It trades about 0.08 of its potential returns per unit of risk. Federated High Income is currently generating about 0.27 per unit of risk. If you would invest 4,551 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
General Motors vs. Federated High Income
Performance |
| Timeline |
| General Motors |
| Federated High Income |
GM and Federated High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Federated High
The main advantage of trading using opposite GM and Federated High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Federated High 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 Federated High will offset losses from the drop in Federated High's long position.The idea behind General Motors and Federated High Income 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.| Federated High vs. Ms Global Fixed | Federated High vs. T Rowe Price | Federated High vs. Versatile Bond Portfolio | Federated High vs. Ab Global Bond |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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