Correlation Between GM and CHSB

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

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

Diversification Opportunities for GM and CHSB

0.14

Correlation Coefficient

GM  CHSB

Average diversification

The 3 months correlation between GM and CHSB is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CHSB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHSB 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 CHSB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHSB has no effect on the direction of GM i.e., GM and CHSB go up and down completely randomly.

Pair Corralation between GM and CHSB

Allowing for the 90-day total investment horizon GM is expected to generate 14.05 times less return on investment than CHSB. But when comparing it to its historical volatility, General Motors is 11.38 times less risky than CHSB. It trades about 0.1 of its potential returns per unit of risk. CHSB is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  18.00  in CHSB on September 1, 2024 and sell it today you would earn a total of  42.00  from holding CHSB or generate 233.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

General Motors  vs.  CHSB

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.

CHSB

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHSB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, CHSB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and CHSB

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

The idea behind General Motors and CHSB 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.