Correlation Between GM and Altex Industries

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

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

Diversification Opportunities for GM and Altex Industries

0.21

Correlation Coefficient

GM  Altex Industries

Modest diversification

The 3 months correlation between GM and Altex is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Altex Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altex Industries 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 Altex Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altex Industries has no effect on the direction of GM i.e., GM and Altex Industries go up and down completely randomly.

Pair Corralation between GM and Altex Industries

Allowing for the 90-day total investment horizon GM is expected to generate 5.28 times less return on investment than Altex Industries. But when comparing it to its historical volatility, General Motors is 2.23 times less risky than Altex Industries. It trades about 0.06 of its potential returns per unit of risk. Altex Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Altex Industries on September 18, 2024 and sell it today you would earn a total of  10.00  from holding Altex Industries or generate 50.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Altex Industries

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.

Altex Industries

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Altex Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Altex Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Altex Industries

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

The idea behind General Motors and Altex Industries 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.