Correlation Between GM and New Providence

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

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

Diversification Opportunities for GM and New Providence

0.15

Correlation Coefficient

GM  New Providence

Average diversification

The 3 months correlation between GM and New is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and New Providence Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Providence Acqui 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 New Providence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Providence Acqui has no effect on the direction of GM i.e., GM and New Providence go up and down completely randomly.

Pair Corralation between GM and New Providence

Allowing for the 90-day total investment horizon GM is expected to generate 9.78 times less return on investment than New Providence. But when comparing it to its historical volatility, General Motors is 5.72 times less risky than New Providence. It trades about 0.08 of its potential returns per unit of risk. New Providence Acquisition is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3.50  in New Providence Acquisition on September 17, 2024 and sell it today you would earn a total of  0.50  from holding New Providence Acquisition or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	23.44%
Values	Daily Returns

General Motors  vs.  New Providence Acquisition

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

New Providence Acqui

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days New Providence Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal fundamental drivers, New Providence showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and New Providence

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

The idea behind General Motors and New Providence Acquisition 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.