Correlation Between GM and FORTUNE

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Can any of the company-specific risk be diversified away by investing in both GM and FORTUNE 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 FORTUNE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and FORTUNE BRANDS INC, you can compare the effects of market volatilities on GM and FORTUNE 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 FORTUNE. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and FORTUNE.

Diversification Opportunities for GM and FORTUNE

0.3
  Correlation Coefficient
 GM

Weak diversification

The 3 months correlation between GM and FORTUNE is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FORTUNE BRANDS INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FORTUNE BRANDS INC 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 FORTUNE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FORTUNE BRANDS INC has no effect on the direction of GM i.e., GM and FORTUNE go up and down completely randomly.

Pair Corralation between GM and FORTUNE

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.93 times more return on investment than FORTUNE. However, GM is 1.93 times more volatile than FORTUNE BRANDS INC. It trades about 0.13 of its potential returns per unit of risk. FORTUNE BRANDS INC is currently generating about -0.44 per unit of risk. If you would invest  5,154  in General Motors on August 30, 2024 and sell it today you would earn a total of  396.00  from holding General Motors or generate 7.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy31.82%
ValuesDaily Returns

General Motors  vs.  FORTUNE BRANDS INC

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
FORTUNE BRANDS INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FORTUNE BRANDS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for FORTUNE BRANDS INC investors.

GM and FORTUNE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and FORTUNE

The main advantage of trading using opposite GM and FORTUNE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, FORTUNE 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 FORTUNE will offset losses from the drop in FORTUNE's long position.
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The idea behind General Motors and FORTUNE BRANDS INC 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.
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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