Correlation Between GM and Eco Oil

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

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

Diversification Opportunities for GM and Eco Oil

-0.45

Correlation Coefficient

GM  Eco Oil

Very good diversification

The 3 months correlation between GM and Eco is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Eco Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Oil Gas 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 Eco Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Oil Gas has no effect on the direction of GM i.e., GM and Eco Oil go up and down completely randomly.

Pair Corralation between GM and Eco Oil

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Eco Oil. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.93 times less risky than Eco Oil. The stock trades about -0.23 of its potential returns per unit of risk. The Eco Oil Gas is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,025  in Eco Oil Gas on September 23, 2024 and sell it today you would earn a total of  75.00  from holding Eco Oil Gas or generate 7.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Eco Oil Gas

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Eco Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eco Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Eco Oil is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and Eco Oil

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

The idea behind General Motors and Eco Oil Gas 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.