Correlation Between GM and Farm Pride
Can any of the company-specific risk be diversified away by investing in both GM and Farm Pride 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 Farm Pride into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Farm Pride Foods, you can compare the effects of market volatilities on GM and Farm Pride 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 Farm Pride. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Farm Pride.
Diversification Opportunities for GM and Farm Pride
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Farm is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Farm Pride Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farm Pride Foods 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 Farm Pride. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farm Pride Foods has no effect on the direction of GM i.e., GM and Farm Pride go up and down completely randomly.
Pair Corralation between GM and Farm Pride
Allowing for the 90-day total investment horizon GM is expected to generate 1.1 times less return on investment than Farm Pride. But when comparing it to its historical volatility, General Motors is 1.94 times less risky than Farm Pride. It trades about 0.09 of its potential returns per unit of risk. Farm Pride Foods is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 11.00 in Farm Pride Foods on September 4, 2024 and sell it today you would earn a total of 1.00 from holding Farm Pride Foods or generate 9.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Farm Pride Foods
Performance |
| Timeline |
| General Motors |
| Farm Pride Foods |
GM and Farm Pride Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Farm Pride
The main advantage of trading using opposite GM and Farm Pride positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Farm Pride 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 Farm Pride will offset losses from the drop in Farm Pride's long position.The idea behind General Motors and Farm Pride Foods 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.| Farm Pride vs. Audio Pixels Holdings | Farm Pride vs. Norwest Minerals | Farm Pride vs. Lindian Resources | Farm Pride vs. Resource Base |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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