Correlation Between GM and Columbia Small

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

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

Diversification Opportunities for GM and Columbia Small

0.43

Correlation Coefficient

GM  Columbia Small

Very weak diversification

The 3 months correlation between GM and Columbia is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Columbia Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Small Cap 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 Columbia Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Small Cap has no effect on the direction of GM i.e., GM and Columbia Small go up and down completely randomly.

Pair Corralation between GM and Columbia Small

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.81 times more return on investment than Columbia Small. However, GM is 1.81 times more volatile than Columbia Small Cap. It trades about 0.13 of its potential returns per unit of risk. Columbia Small Cap is currently generating about 0.16 per unit of risk. If you would invest  4,474  in General Motors on September 28, 2024 and sell it today you would earn a total of  877.00  from holding General Motors or generate 19.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	67.74%
Values	Daily Returns

General Motors  vs.  Columbia Small Cap

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

Columbia Small Cap

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Columbia Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Columbia Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Columbia Small

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

The idea behind General Motors and Columbia Small Cap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.