Correlation Between GM and FUJITSU

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

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

Diversification Opportunities for GM and FUJITSU

-0.66

Correlation Coefficient

GM  FUJITSU

Excellent diversification

The 3 months correlation between GM and FUJITSU is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FUJITSU LTD ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FUJITSU LTD ADR 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 FUJITSU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FUJITSU LTD ADR has no effect on the direction of GM i.e., GM and FUJITSU go up and down completely randomly.

Pair Corralation between GM and FUJITSU

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the FUJITSU. In addition to that, GM is 1.59 times more volatile than FUJITSU LTD ADR. It trades about -0.05 of its total potential returns per unit of risk. FUJITSU LTD ADR is currently generating about 0.05 per unit of volatility. If you would invest  1,700  in FUJITSU LTD ADR on September 9, 2024 and sell it today you would earn a total of  30.00  from holding FUJITSU LTD ADR or generate 1.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  FUJITSU LTD ADR

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.

FUJITSU LTD ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FUJITSU LTD ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, FUJITSU 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 FUJITSU

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

The idea behind General Motors and FUJITSU LTD ADR 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.