Correlation Between GM and Medtech Acquisition

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

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

Diversification Opportunities for GM and Medtech Acquisition

-0.11

Correlation Coefficient

GM  Medtech Acquisition

Good diversification

The 3 months correlation between GM and Medtech is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Medtech Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtech Acquisition Corp 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 Medtech Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtech Acquisition Corp has no effect on the direction of GM i.e., GM and Medtech Acquisition go up and down completely randomly.

Pair Corralation between GM and Medtech Acquisition

Allowing for the 90-day total investment horizon General Motors is expected to generate 5.13 times more return on investment than Medtech Acquisition. However, GM is 5.13 times more volatile than Medtech Acquisition Corp. It trades about 0.05 of its potential returns per unit of risk. Medtech Acquisition Corp is currently generating about -0.04 per unit of risk. If you would invest  3,294  in General Motors on September 20, 2024 and sell it today you would earn a total of  1,740  from holding General Motors or generate 52.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.02%
Values	Daily Returns

General Motors  vs.  Medtech Acquisition Corp

General Motors

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Medtech Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtech Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Medtech Acquisition is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Medtech Acquisition

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

The idea behind General Motors and Medtech Acquisition Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.