Correlation Between GM and F5 Networks
Can any of the company-specific risk be diversified away by investing in both GM and F5 Networks 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 F5 Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and F5 Networks, you can compare the effects of market volatilities on GM and F5 Networks 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 F5 Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and F5 Networks.
Diversification Opportunities for GM and F5 Networks
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and FFIV is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and F5 Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on F5 Networks 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 F5 Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of F5 Networks has no effect on the direction of GM i.e., GM and F5 Networks go up and down completely randomly.
Pair Corralation between GM and F5 Networks
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.16 times more return on investment than F5 Networks. However, GM is 1.16 times more volatile than F5 Networks. It trades about 0.08 of its potential returns per unit of risk. F5 Networks is currently generating about -0.08 per unit of risk. If you would invest 4,400 in General Motors on January 26, 2024 and sell it today you would earn a total of 108.00 from holding General Motors or generate 2.45% 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. F5 Networks
Performance |
| Timeline |
| General Motors |
| F5 Networks |
GM and F5 Networks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and F5 Networks
The main advantage of trading using opposite GM and F5 Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, F5 Networks 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 F5 Networks will offset losses from the drop in F5 Networks' long position.The idea behind General Motors and F5 Networks 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.| F5 Networks vs. Sterling Check Corp | F5 Networks vs. Repay Holdings Corp | F5 Networks vs. SPS Commerce | F5 Networks vs. Evertec |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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