Correlation Between GM and First Investors

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Can any of the company-specific risk be diversified away by investing in both GM and First Investors 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 First Investors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and First Investors Select, you can compare the effects of market volatilities on GM and First Investors 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 First Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and First Investors.

Diversification Opportunities for GM and First Investors

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GM and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and First Investors Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Investors Select 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 First Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Investors Select has no effect on the direction of GM i.e., GM and First Investors go up and down completely randomly.

Pair Corralation between GM and First Investors

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.38 times more return on investment than First Investors. However, GM is 2.38 times more volatile than First Investors Select. It trades about 0.09 of its potential returns per unit of risk. First Investors Select is currently generating about 0.1 per unit of risk. If you would invest  4,044  in General Motors on September 1, 2024 and sell it today you would earn a total of  1,515  from holding General Motors or generate 37.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  First Investors Select

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
First Investors Select 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in First Investors Select are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, First Investors showed solid returns over the last few months and may actually be approaching a breakup point.

GM and First Investors Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and First Investors

The main advantage of trading using opposite GM and First Investors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, First Investors 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 First Investors will offset losses from the drop in First Investors' long position.
The idea behind General Motors and First Investors Select 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.
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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