Correlation Between GM and Hartford Small

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

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

Diversification Opportunities for GM and Hartford Small

0.7

Correlation Coefficient

GM  Hartford Small

Poor diversification

The 3 months correlation between GM and Hartford is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Hartford Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Small 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 Hartford Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Small has no effect on the direction of GM i.e., GM and Hartford Small go up and down completely randomly.

Pair Corralation between GM and Hartford Small

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.97 times more return on investment than Hartford Small. However, GM is 1.97 times more volatile than The Hartford Small. It trades about 0.1 of its potential returns per unit of risk. The Hartford Small is currently generating about 0.02 per unit of risk. If you would invest  4,563  in General Motors on September 25, 2024 and sell it today you would earn a total of  618.00  from holding General Motors or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  The Hartford Small

General Motors

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

Hartford Small

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Hartford Small are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Hartford Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Hartford Small

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

The idea behind General Motors and The Hartford Small 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.