Correlation Between GM and Chembond Chemicals

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

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

Diversification Opportunities for GM and Chembond Chemicals

-0.65

Correlation Coefficient

GM  Chembond Chemicals

Excellent diversification

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

Pair Corralation between GM and Chembond Chemicals

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Chembond Chemicals. In addition to that, GM is 1.69 times more volatile than Chembond Chemicals. It trades about -0.11 of its total potential returns per unit of risk. Chembond Chemicals is currently generating about 0.31 per unit of volatility. If you would invest  54,680  in Chembond Chemicals on September 22, 2024 and sell it today you would earn a total of  6,030  from holding Chembond Chemicals or generate 11.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Chembond Chemicals

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.

Chembond Chemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chembond Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Chembond Chemicals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Chembond Chemicals

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

The idea behind General Motors and Chembond Chemicals 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.