Correlation Between GM and Peninsula Energy

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

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

Diversification Opportunities for GM and Peninsula Energy

0.54

Correlation Coefficient

GM  Peninsula Energy

Very weak diversification

The 3 months correlation between GM and Peninsula is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Peninsula Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peninsula Energy 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 Peninsula Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peninsula Energy has no effect on the direction of GM i.e., GM and Peninsula Energy go up and down completely randomly.

Pair Corralation between GM and Peninsula Energy

Allowing for the 90-day total investment horizon GM is expected to generate 69.4 times less return on investment than Peninsula Energy. But when comparing it to its historical volatility, General Motors is 52.28 times less risky than Peninsula Energy. It trades about 0.09 of its potential returns per unit of risk. Peninsula Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5.75  in Peninsula Energy on September 13, 2024 and sell it today you would earn a total of  64.25  from holding Peninsula Energy or generate 1117.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Peninsula Energy

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.

Peninsula Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Peninsula Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Peninsula Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Peninsula Energy

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

The idea behind General Motors and Peninsula Energy 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.