Correlation Between GM and Atlas Copco

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

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

Diversification Opportunities for GM and Atlas Copco

-0.81

Correlation Coefficient

GM  Atlas Copco

Pay attention - limited upside

The 3 months correlation between GM and Atlas is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB 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 Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco AB has no effect on the direction of GM i.e., GM and Atlas Copco go up and down completely randomly.

Pair Corralation between GM and Atlas Copco

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.49 times more return on investment than Atlas Copco. However, GM is 1.49 times more volatile than Atlas Copco AB. It trades about 0.1 of its potential returns per unit of risk. Atlas Copco AB is currently generating about -0.08 per unit of risk. If you would invest  4,829  in General Motors on September 2, 2024 and sell it today you would earn a total of  730.00  from holding General Motors or generate 15.12% 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.  Atlas Copco AB

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.

Atlas Copco AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Atlas Copco AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with GM and Atlas Copco

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

The idea behind General Motors and Atlas Copco AB 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.