Correlation Between GM and First Industrial

Can any of the company-specific risk be diversified away by investing in both GM and First Industrial 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 Industrial 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 Industrial Realty, you can compare the effects of market volatilities on GM and First Industrial 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 Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and First Industrial.

Diversification Opportunities for GM and First Industrial

0.23

Correlation Coefficient

GM  First Industrial

Modest diversification

The 3 months correlation between GM and First is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and First Industrial Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Industrial Realty 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 Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Industrial Realty has no effect on the direction of GM i.e., GM and First Industrial go up and down completely randomly.

Pair Corralation between GM and First Industrial

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.09 times more return on investment than First Industrial. However, GM is 2.09 times more volatile than First Industrial Realty. It trades about 0.11 of its potential returns per unit of risk. First Industrial Realty is currently generating about -0.02 per unit of risk. If you would invest  4,638  in General Motors on September 27, 2024 and sell it today you would earn a total of  713.00  from holding General Motors or generate 15.37% 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 Industrial Realty

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 8 (%) 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.

First Industrial Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Industrial Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Industrial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and First Industrial

The main advantage of trading using opposite GM and First Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, First Industrial 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 Industrial will offset losses from the drop in First Industrial's long position.

The idea behind General Motors and First Industrial Realty 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.