Correlation Between Freddie Mac and Gear4music Plc

Can any of the company-specific risk be diversified away by investing in both Freddie Mac and Gear4music Plc 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 Freddie Mac and Gear4music Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Freddie Mac and Gear4music Plc, you can compare the effects of market volatilities on Freddie Mac and Gear4music Plc 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 Freddie Mac with a short position of Gear4music Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freddie Mac and Gear4music Plc.

Diversification Opportunities for Freddie Mac and Gear4music Plc

-0.59

Correlation Coefficient

Freddie Mac  Gear4music Plc

Excellent diversification

The 3 months correlation between Freddie and Gear4music is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Freddie Mac and Gear4music Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear4music Plc and Freddie Mac 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 Freddie Mac are associated (or correlated) with Gear4music Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear4music Plc has no effect on the direction of Freddie Mac i.e., Freddie Mac and Gear4music Plc go up and down completely randomly.

Pair Corralation between Freddie Mac and Gear4music Plc

Assuming the 90 days trading horizon Freddie Mac is expected to generate 4.61 times more return on investment than Gear4music Plc. However, Freddie Mac is 4.61 times more volatile than Gear4music Plc. It trades about 0.42 of its potential returns per unit of risk. Gear4music Plc is currently generating about 0.01 per unit of risk. If you would invest  128.00  in Freddie Mac on September 2, 2024 and sell it today you would earn a total of  180.00  from holding Freddie Mac or generate 140.63% return on investment over 90 days.

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

Freddie Mac  vs.  Gear4music Plc

Freddie Mac

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Freddie Mac are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Freddie Mac unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gear4music Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear4music Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Freddie Mac and Gear4music Plc

The main advantage of trading using opposite Freddie Mac and Gear4music Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freddie Mac position performs unexpectedly, Gear4music Plc 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 Gear4music Plc will offset losses from the drop in Gear4music Plc's long position.

The idea behind Freddie Mac and Gear4music Plc 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.