Correlation Between GM and Home Federal
Can any of the company-specific risk be diversified away by investing in both GM and Home Federal 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 Home Federal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Home Federal Bancorp, you can compare the effects of market volatilities on GM and Home Federal 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 Home Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Home Federal.
Diversification Opportunities for GM and Home Federal
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Home is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal Bancorp 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 Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of GM i.e., GM and Home Federal go up and down completely randomly.
Pair Corralation between GM and Home Federal
Allowing for the 90-day total investment horizon GM is expected to generate 34.91 times less return on investment than Home Federal. But when comparing it to its historical volatility, General Motors is 44.16 times less risky than Home Federal. It trades about 0.11 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,102 in Home Federal Bancorp on August 24, 2024 and sell it today you would earn a total of 127.00 from holding Home Federal Bancorp or generate 11.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.4% |
| Values | Daily Returns |
General Motors vs. Home Federal Bancorp
Performance |
| Timeline |
| General Motors |
| Home Federal Bancorp |
GM and Home Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Home Federal
The main advantage of trading using opposite GM and Home Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Home Federal 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 Home Federal will offset losses from the drop in Home Federal's long position.The idea behind General Motors and Home Federal Bancorp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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