Correlation Between GM and Solution Advanced

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

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

Diversification Opportunities for GM and Solution Advanced

-0.62

Correlation Coefficient

GM  Solution Advanced

Excellent diversification

The 3 months correlation between GM and Solution is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Solution Advanced Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solution Advanced 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 Solution Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solution Advanced has no effect on the direction of GM i.e., GM and Solution Advanced go up and down completely randomly.

Pair Corralation between GM and Solution Advanced

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.86 times more return on investment than Solution Advanced. However, General Motors is 1.17 times less risky than Solution Advanced. It trades about 0.1 of its potential returns per unit of risk. Solution Advanced Technology is currently generating about 0.04 per unit of risk. If you would invest  4,829  in General Motors on September 1, 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 Against
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

General Motors  vs.  Solution Advanced 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.

Solution Advanced

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solution Advanced Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solution Advanced may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with GM and Solution Advanced

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

The idea behind General Motors and Solution Advanced 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.