Correlation Between GM and Coffee Holding

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Can any of the company-specific risk be diversified away by investing in both GM and Coffee Holding 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 Coffee Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Coffee Holding Co, you can compare the effects of market volatilities on GM and Coffee Holding 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 Coffee Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Coffee Holding.

Diversification Opportunities for GM and Coffee Holding

GMCoffeeDiversified AwayGMCoffeeDiversified Away100%
0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between GM and Coffee is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Coffee Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee Holding 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 Coffee Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee Holding has no effect on the direction of GM i.e., GM and Coffee Holding go up and down completely randomly.

Pair Corralation between GM and Coffee Holding

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.29 times more return on investment than Coffee Holding. However, General Motors is 3.5 times less risky than Coffee Holding. It trades about -0.03 of its potential returns per unit of risk. Coffee Holding Co is currently generating about -0.03 per unit of risk. If you would invest  5,492  in General Motors on October 1, 2024 and sell it today you would lose (64.00) from holding General Motors or give up 1.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy85.71%
ValuesDaily Returns

General Motors  vs.  Coffee Holding Co

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10010203040
JavaScript chart by amCharts 3.21.15GM E6U
       Timeline  
General Motors 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15NovDecDec464850525456586062
Coffee Holding 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecDec2.533.54

GM and Coffee Holding Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-7.23-5.41-3.6-1.780.01.93.835.767.69 0.020.030.040.050.060.07
JavaScript chart by amCharts 3.21.15GM E6U
       Returns  

Pair Trading with GM and Coffee Holding

The main advantage of trading using opposite GM and Coffee Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Coffee Holding 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 Coffee Holding will offset losses from the drop in Coffee Holding's long position.
The idea behind General Motors and Coffee Holding Co 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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