Correlation Between GM and Alger Small

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

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

Diversification Opportunities for GM and Alger Small

0.65

Correlation Coefficient

GM  Alger Small

Poor diversification

The 3 months correlation between GM and Alger is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Alger Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Small Cap 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 Alger Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Small Cap has no effect on the direction of GM i.e., GM and Alger Small go up and down completely randomly.

Pair Corralation between GM and Alger Small

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.11 times more return on investment than Alger Small. However, GM is 2.11 times more volatile than Alger Small Cap. It trades about 0.1 of its potential returns per unit of risk. Alger Small Cap is currently generating about 0.18 per unit of risk. If you would invest  4,829  in General Motors on August 31, 2024 and sell it today you would earn a total of  721.00  from holding General Motors or generate 14.93% return on investment over 90 days.

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

General Motors  vs.  Alger Small Cap

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.

Alger Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Alger Small

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

The idea behind General Motors and Alger Small Cap 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.