Correlation Between GM and First Mid

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

Diversification Opportunities for GM and First Mid

0.43

Correlation Coefficient

GM  First Mid

Very weak diversification

The 3 months correlation between GM and First is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and First Mid Illinois in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Mid Illinois 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Mid Illinois has no effect on the direction of GM i.e., GM and First Mid go up and down completely randomly.

Pair Corralation between GM and First Mid

Allowing for the 90-day total investment horizon GM is expected to generate 1.37 times less return on investment than First Mid. But when comparing it to its historical volatility, General Motors is 1.24 times less risky than First Mid. It trades about 0.09 of its potential returns per unit of risk. First Mid Illinois is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,141  in First Mid Illinois on February 6, 2024 and sell it today you would earn a total of  107.00  from holding First Mid Illinois or generate 3.41% return on investment over 90 days.

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

General Motors  vs.  First Mid Illinois

General Motors

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 16 (%) 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 Mid Illinois

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Mid Illinois are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting fundamental drivers, First Mid may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with GM and First Mid

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

The idea behind General Motors and First Mid Illinois 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.