Correlation Between GM and Av Gad

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

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

Diversification Opportunities for GM and Av Gad

0.64

Correlation Coefficient

GM  Av Gad

Poor diversification

The 3 months correlation between GM and AVGD is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Av Gad Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Av Gad Holdings 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 Av Gad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Av Gad Holdings has no effect on the direction of GM i.e., GM and Av Gad go up and down completely randomly.

Pair Corralation between GM and Av Gad

Allowing for the 90-day total investment horizon GM is expected to generate 2.14 times less return on investment than Av Gad. But when comparing it to its historical volatility, General Motors is 1.47 times less risky than Av Gad. It trades about 0.12 of its potential returns per unit of risk. Av Gad Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  70,120  in Av Gad Holdings on September 14, 2024 and sell it today you would earn a total of  127,780  from holding Av Gad Holdings or generate 182.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	77.7%
Values	Daily Returns

General Motors  vs.  Av Gad Holdings

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Av Gad Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Av Gad Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Av Gad sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Av Gad

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

The idea behind General Motors and Av Gad Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.