Correlation Between GM and Transcontinental

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

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

Diversification Opportunities for GM and Transcontinental

0.05

Correlation Coefficient

GM  Transcontinental

Significant diversification

The 3 months correlation between GM and Transcontinental is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Transcontinental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcontinental 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 Transcontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcontinental has no effect on the direction of GM i.e., GM and Transcontinental go up and down completely randomly.

Pair Corralation between GM and Transcontinental

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Transcontinental. In addition to that, GM is 1.69 times more volatile than Transcontinental. It trades about -0.23 of its total potential returns per unit of risk. Transcontinental is currently generating about 0.06 per unit of volatility. If you would invest  1,140  in Transcontinental on September 23, 2024 and sell it today you would earn a total of  20.00  from holding Transcontinental or generate 1.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Transcontinental

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) 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.

Transcontinental

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transcontinental are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Transcontinental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Transcontinental

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

The idea behind General Motors and Transcontinental 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.