Correlation Between GM and Adaptive Plasma

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

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

Diversification Opportunities for GM and Adaptive Plasma

-0.78

Correlation Coefficient

GM  Adaptive Plasma

Pay attention - limited upside

The 3 months correlation between GM and Adaptive is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Adaptive Plasma Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaptive Plasma Tech 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 Adaptive Plasma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaptive Plasma Tech has no effect on the direction of GM i.e., GM and Adaptive Plasma go up and down completely randomly.

Pair Corralation between GM and Adaptive Plasma

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.58 times more return on investment than Adaptive Plasma. However, General Motors is 1.73 times less risky than Adaptive Plasma. It trades about 0.07 of its potential returns per unit of risk. Adaptive Plasma Technology is currently generating about -0.05 per unit of risk. If you would invest  3,536  in General Motors on August 31, 2024 and sell it today you would earn a total of  2,023  from holding General Motors or generate 57.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.06%
Values	Daily Returns

General Motors  vs.  Adaptive Plasma Technology

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.

Adaptive Plasma Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adaptive Plasma Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GM and Adaptive Plasma

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

The idea behind General Motors and Adaptive Plasma Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.