Correlation Between GM and Fosterville South

Can any of the company-specific risk be diversified away by investing in both GM and Fosterville South 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 Fosterville South into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Motors and Fosterville South Exploration, you can compare the effects of market volatilities on GM and Fosterville South 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 Fosterville South. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Fosterville South.

Diversification Opportunities for GM and Fosterville South

-0.63

Correlation Coefficient

GM  Fosterville South

Excellent diversification

The 3 months correlation between GM and Fosterville is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Fosterville South Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fosterville South 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 Fosterville South. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fosterville South has no effect on the direction of GM i.e., GM and Fosterville South go up and down completely randomly.

Pair Corralation between GM and Fosterville South

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Fosterville South. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.7 times less risky than Fosterville South. The stock trades about -0.15 of its potential returns per unit of risk. The Fosterville South Exploration is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  35.00  in Fosterville South Exploration on September 15, 2024 and sell it today you would earn a total of  0.00  from holding Fosterville South Exploration or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Fosterville South Exploration

General Motors

Risk-Adjusted Performance

6 of 100

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.

Fosterville South

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fosterville South Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GM and Fosterville South

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

The idea behind General Motors and Fosterville South Exploration 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.