Correlation Between GM and DLT

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

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

Diversification Opportunities for GM and DLT

0.88

Correlation Coefficient

GM  DLT

Very poor diversification

The 3 months correlation between GM and DLT is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and DLT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DLT 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 DLT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DLT has no effect on the direction of GM i.e., GM and DLT go up and down completely randomly.

Pair Corralation between GM and DLT

Allowing for the 90-day total investment horizon GM is expected to generate 3.34 times less return on investment than DLT. But when comparing it to its historical volatility, General Motors is 1.31 times less risky than DLT. It trades about 0.1 of its potential returns per unit of risk. DLT is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  0.03  in DLT on September 1, 2024 and sell it today you would earn a total of  0.02  from holding DLT or generate 67.94% return on investment over 90 days.

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

General Motors  vs.  DLT

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.

DLT

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DLT are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DLT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and DLT

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

The idea behind General Motors and DLT 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.