Correlation Between GM and Lords Company

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

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

Diversification Opportunities for GM and Lords Company

0.06

Correlation Coefficient

GM  Lords Company

Significant diversification

The 3 months correlation between GM and Lords is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lords Company Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lords Worldwide 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 Lords Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lords Worldwide has no effect on the direction of GM i.e., GM and Lords Company go up and down completely randomly.

Pair Corralation between GM and Lords Company

Allowing for the 90-day total investment horizon GM is expected to generate 18.12 times less return on investment than Lords Company. But when comparing it to its historical volatility, General Motors is 17.79 times less risky than Lords Company. It trades about 0.09 of its potential returns per unit of risk. Lords Company Worldwide is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.09  in Lords Company Worldwide on September 4, 2024 and sell it today you would earn a total of  0.00  from holding Lords Company Worldwide or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Lords Company Worldwide

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.

Lords Worldwide

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lords Company Worldwide are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Lords Company reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Lords Company

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

The idea behind General Motors and Lords Company Worldwide 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.