Correlation Between GM and Arcosa

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

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

Diversification Opportunities for GM and Arcosa

0.77

Correlation Coefficient

GM  Arcosa

Poor diversification

The 3 months correlation between GM and Arcosa is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Arcosa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcosa Inc 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 Arcosa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcosa Inc has no effect on the direction of GM i.e., GM and Arcosa go up and down completely randomly.

Pair Corralation between GM and Arcosa

Allowing for the 90-day total investment horizon GM is expected to generate 1.47 times less return on investment than Arcosa. In addition to that, GM is 1.53 times more volatile than Arcosa Inc. It trades about 0.06 of its total potential returns per unit of risk. Arcosa Inc is currently generating about 0.14 per unit of volatility. If you would invest  8,295  in Arcosa Inc on September 23, 2024 and sell it today you would earn a total of  1,205  from holding Arcosa Inc or generate 14.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

General Motors  vs.  Arcosa Inc

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 weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arcosa Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arcosa Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arcosa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Arcosa

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

The idea behind General Motors and Arcosa Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.