Correlation Between GM and Asian Pac

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

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

Diversification Opportunities for GM and Asian Pac

-0.82

Correlation Coefficient

GM  Asian Pac

Pay attention - limited upside

The 3 months correlation between GM and Asian is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Asian Pac Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Pac Holdings 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 Asian Pac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Pac Holdings has no effect on the direction of GM i.e., GM and Asian Pac go up and down completely randomly.

Pair Corralation between GM and Asian Pac

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Asian Pac. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.1 times less risky than Asian Pac. The stock trades about -0.21 of its potential returns per unit of risk. The Asian Pac Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9.50  in Asian Pac Holdings on September 25, 2024 and sell it today you would earn a total of  0.50  from holding Asian Pac Holdings or generate 5.26% return on investment over 90 days.

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

General Motors  vs.  Asian Pac Holdings

General Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 9 (%) 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.

Asian Pac Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asian Pac Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with GM and Asian Pac

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

The idea behind General Motors and Asian Pac Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.