Correlation Between GM and Lease IT

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

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

Diversification Opportunities for GM and Lease IT

-0.62

Correlation Coefficient

GM  Lease IT

Excellent diversification

The 3 months correlation between GM and Lease is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lease IT Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lease IT Public 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 Lease IT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lease IT Public has no effect on the direction of GM i.e., GM and Lease IT go up and down completely randomly.

Pair Corralation between GM and Lease IT

Allowing for the 90-day total investment horizon GM is expected to generate 15.05 times less return on investment than Lease IT. But when comparing it to its historical volatility, General Motors is 22.21 times less risky than Lease IT. It trades about 0.06 of its potential returns per unit of risk. Lease IT Public is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  179.00  in Lease IT Public on September 13, 2024 and sell it today you would lose (102.00) from holding Lease IT Public or give up 56.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.17%
Values	Daily Returns

General Motors  vs.  Lease IT Public

General Motors

Risk-Adjusted Performance

7 of 100

OK

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.

Lease IT Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lease IT Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with GM and Lease IT

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

The idea behind General Motors and Lease IT Public 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..