Correlation Between GM and Youl Chon

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

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

Diversification Opportunities for GM and Youl Chon

0.4

Correlation Coefficient

GM  Youl Chon

Very weak diversification

The 3 months correlation between GM and Youl is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Youl Chon Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youl Chon Chemical 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 Youl Chon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youl Chon Chemical has no effect on the direction of GM i.e., GM and Youl Chon go up and down completely randomly.

Pair Corralation between GM and Youl Chon

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.69 times more return on investment than Youl Chon. However, General Motors is 1.44 times less risky than Youl Chon. It trades about 0.1 of its potential returns per unit of risk. Youl Chon Chemical is currently generating about 0.02 per unit of risk. If you would invest  4,829  in General Motors on September 3, 2024 and sell it today you would earn a total of  730.00  from holding General Motors or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.19%
Values	Daily Returns

General Motors  vs.  Youl Chon Chemical

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

Youl Chon Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Youl Chon Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Youl Chon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Youl Chon

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

The idea behind General Motors and Youl Chon Chemical 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 Anywhere module to track or share privately all of your investments from the convenience of any device.