Correlation Between GM and Lancashire Holdings

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

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

Diversification Opportunities for GM and Lancashire Holdings

0.08

Correlation Coefficient

GM  Lancashire Holdings

Significant diversification

The 3 months correlation between GM and Lancashire is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lancashire Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings 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 Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of GM i.e., GM and Lancashire Holdings go up and down completely randomly.

Pair Corralation between GM and Lancashire Holdings

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.97 times more return on investment than Lancashire Holdings. However, General Motors is 1.03 times less risky than Lancashire Holdings. It trades about 0.06 of its potential returns per unit of risk. Lancashire Holdings Limited is currently generating about 0.02 per unit of risk. If you would invest  4,793  in General Motors on September 23, 2024 and sell it today you would earn a total of  388.00  from holding General Motors or generate 8.1% return on investment over 90 days.

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

General Motors  vs.  Lancashire Holdings Limited

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.

Lancashire Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lancashire Holdings Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lancashire Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Lancashire Holdings

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

The idea behind General Motors and Lancashire Holdings Limited 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.