Correlation Between GM and First Bank
Can any of the company-specific risk be diversified away by investing in both GM and First Bank 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 Bank 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 Bank, you can compare the effects of market volatilities on GM and First Bank 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 Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and First Bank.
Diversification Opportunities for GM and First Bank
-0.36 | Correlation Coefficient |
Very good 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 Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bank 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 Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bank has no effect on the direction of GM i.e., GM and First Bank go up and down completely randomly.
Pair Corralation between GM and First Bank
Allowing for the 90-day total investment horizon GM is expected to generate 1.04 times less return on investment than First Bank. In addition to that, GM is 1.01 times more volatile than First Bank. It trades about 0.04 of its total potential returns per unit of risk. First Bank is currently generating about 0.05 per unit of volatility. If you would invest 1,070 in First Bank on December 2, 2024 and sell it today you would earn a total of 458.00 from holding First Bank or generate 42.8% 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. First Bank
Performance |
| Timeline |
| General Motors |
| First Bank |
GM and First Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and First Bank
The main advantage of trading using opposite GM and First Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, First Bank 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 Bank will offset losses from the drop in First Bank's long position.The idea behind General Motors and First Bank 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 Bank vs. First Northwest Bancorp | ||
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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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