Correlation Between GM and High Tide

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

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

Diversification Opportunities for GM and High Tide

0.6

Correlation Coefficient

GM  High Tide

Poor diversification

The 3 months correlation between GM and High is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and High Tide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Tide 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 High Tide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Tide has no effect on the direction of GM i.e., GM and High Tide go up and down completely randomly.

Pair Corralation between GM and High Tide

Allowing for the 90-day total investment horizon GM is expected to generate 5.01 times less return on investment than High Tide. But when comparing it to its historical volatility, General Motors is 1.53 times less risky than High Tide. It trades about 0.06 of its potential returns per unit of risk. High Tide is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  277.00  in High Tide on September 22, 2024 and sell it today you would earn a total of  156.00  from holding High Tide or generate 56.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

General Motors  vs.  High Tide

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.

High Tide

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in High Tide are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, High Tide showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and High Tide

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

The idea behind General Motors and High Tide 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.