Correlation Between GM and Devon Energy

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

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

Diversification Opportunities for GM and Devon Energy

-0.1

Correlation Coefficient

GM  Devon Energy

Good diversification

The 3 months correlation between GM and Devon is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of GM i.e., GM and Devon Energy go up and down completely randomly.

Pair Corralation between GM and Devon Energy

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.1 times more return on investment than Devon Energy. However, GM is 1.1 times more volatile than Devon Energy. It trades about 0.11 of its potential returns per unit of risk. Devon Energy is currently generating about -0.04 per unit of risk. If you would invest  3,273  in General Motors on September 28, 2024 and sell it today you would earn a total of  2,156  from holding General Motors or generate 65.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.26%
Values	Daily Returns

General Motors  vs.  Devon Energy

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.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GM and Devon Energy

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

The idea behind General Motors and Devon Energy 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 Transaction History module to view history of all your transactions and understand their impact on performance.