Correlation Between GM and Federated Mid-cap
Can any of the company-specific risk be diversified away by investing in both GM and Federated Mid-cap 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 Mid-cap 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 Mid Cap Index, you can compare the effects of market volatilities on GM and Federated Mid-cap 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 Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Federated Mid-cap.
Diversification Opportunities for GM and Federated Mid-cap
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Federated is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Federated Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Mid Cap 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 Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Mid Cap has no effect on the direction of GM i.e., GM and Federated Mid-cap go up and down completely randomly.
Pair Corralation between GM and Federated Mid-cap
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Federated Mid-cap. In addition to that, GM is 2.68 times more volatile than Federated Mid Cap Index. It trades about -0.32 of its total potential returns per unit of risk. Federated Mid Cap Index is currently generating about -0.24 per unit of volatility. If you would invest 1,602 in Federated Mid Cap Index on November 28, 2024 and sell it today you would lose (69.00) from holding Federated Mid Cap Index or give up 4.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Federated Mid Cap Index
Performance |
| Timeline |
| General Motors |
| Federated Mid Cap |
GM and Federated Mid-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Federated Mid-cap
The main advantage of trading using opposite GM and Federated Mid-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Federated Mid-cap 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 Mid-cap will offset losses from the drop in Federated Mid-cap's long position.The idea behind General Motors and Federated Mid Cap Index 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 Mid-cap vs. Dreyfus Smallcap Stock | Federated Mid-cap vs. Federated Mid Cap Index | Federated Mid-cap vs. Wells Fargo Growth | Federated Mid-cap vs. Dreyfus Midcap Index |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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