Correlation Between GM and First Trust
Can any of the company-specific risk be diversified away by investing in both GM and First Trust 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 Trust 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 Trust International, you can compare the effects of market volatilities on GM and First Trust 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 Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and First Trust.
Diversification Opportunities for GM and First Trust
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and First is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and First Trust International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust International 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust International has no effect on the direction of GM i.e., GM and First Trust go up and down completely randomly.
Pair Corralation between GM and First Trust
Allowing for the 90-day total investment horizon GM is expected to generate 1.74 times less return on investment than First Trust. In addition to that, GM is 2.13 times more volatile than First Trust International. It trades about 0.07 of its total potential returns per unit of risk. First Trust International is currently generating about 0.26 per unit of volatility. If you would invest 4,756 in First Trust International on October 23, 2024 and sell it today you would earn a total of 245.00 from holding First Trust International or generate 5.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. First Trust International
Performance |
| Timeline |
| General Motors |
| First Trust International |
GM and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and First Trust
The main advantage of trading using opposite GM and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, First Trust 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 Trust will offset losses from the drop in First Trust's long position.The idea behind General Motors and First Trust International 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.| First Trust vs. First Trust Mid | First Trust vs. First Trust Emerging | First Trust vs. First Trust Emerging | First Trust vs. First Trust SSI |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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