Correlation Between GM and Chicken Soup

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

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

Diversification Opportunities for GM and Chicken Soup

0.29

Correlation Coefficient

GM  Chicken Soup

Modest diversification

The 3 months correlation between GM and Chicken is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Chicken Soup For in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chicken Soup For 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 Chicken Soup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chicken Soup For has no effect on the direction of GM i.e., GM and Chicken Soup go up and down completely randomly.

Pair Corralation between GM and Chicken Soup

Allowing for the 90-day total investment horizon GM is expected to generate 3.97 times less return on investment than Chicken Soup. But when comparing it to its historical volatility, General Motors is 6.41 times less risky than Chicken Soup. It trades about 0.05 of its potential returns per unit of risk. Chicken Soup For is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3.12  in Chicken Soup For on October 1, 2024 and sell it today you would lose (2.33) from holding Chicken Soup For or give up 74.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	74.04%
Values	Daily Returns

General Motors  vs.  Chicken Soup For

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

Chicken Soup For

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chicken Soup For has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Chicken Soup is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with GM and Chicken Soup

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

The idea behind General Motors and Chicken Soup For 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.