Correlation Between GM and Andes Technology

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

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

Diversification Opportunities for GM and Andes Technology

0.05

Correlation Coefficient

GM  Andes Technology

Significant diversification

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

Pair Corralation between GM and Andes Technology

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.04 times more return on investment than Andes Technology. However, GM is 1.04 times more volatile than Andes Technology Corp. It trades about 0.12 of its potential returns per unit of risk. Andes Technology Corp is currently generating about 0.11 per unit of risk. If you would invest  4,571  in General Motors on September 26, 2024 and sell it today you would earn a total of  780.00  from holding General Motors or generate 17.06% return on investment over 90 days.

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

General Motors  vs.  Andes Technology Corp

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.

Andes Technology Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Andes Technology Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Andes Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Andes Technology

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

The idea behind General Motors and Andes Technology Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.