Correlation Between GM and Kezar Life

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

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

Diversification Opportunities for GM and Kezar Life

0.18

Correlation Coefficient

GM  Kezar Life

Average diversification

The 3 months correlation between GM and Kezar is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kezar Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kezar Life Sciences 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 Kezar Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kezar Life Sciences has no effect on the direction of GM i.e., GM and Kezar Life go up and down completely randomly.

Pair Corralation between GM and Kezar Life

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.12 times more return on investment than Kezar Life. However, GM is 2.12 times more volatile than Kezar Life Sciences. It trades about 0.04 of its potential returns per unit of risk. Kezar Life Sciences is currently generating about -0.32 per unit of risk. If you would invest  4,882  in General Motors on September 21, 2024 and sell it today you would earn a total of  152.00  from holding General Motors or generate 3.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

General Motors  vs.  Kezar Life Sciences

General Motors

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kezar Life Sciences

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kezar Life Sciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Kezar Life unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Kezar Life

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

The idea behind General Motors and Kezar Life Sciences 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.