Correlation Between GM and Reconnaissance Energy

Can any of the company-specific risk be diversified away by investing in both GM and Reconnaissance 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 Reconnaissance 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 Reconnaissance Energy Africa, you can compare the effects of market volatilities on GM and Reconnaissance 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 Reconnaissance Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Reconnaissance Energy.

Diversification Opportunities for GM and Reconnaissance Energy

0.04

Correlation Coefficient

GM  Reconnaissance Energy

Significant diversification

The 3 months correlation between GM and Reconnaissance is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Reconnaissance Energy Africa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reconnaissance 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 Reconnaissance Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reconnaissance Energy has no effect on the direction of GM i.e., GM and Reconnaissance Energy go up and down completely randomly.

Pair Corralation between GM and Reconnaissance Energy

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.47 times more return on investment than Reconnaissance Energy. However, General Motors is 2.12 times less risky than Reconnaissance Energy. It trades about 0.1 of its potential returns per unit of risk. Reconnaissance Energy Africa is currently generating about 0.02 per unit of risk. If you would invest  2,863  in General Motors on September 19, 2024 and sell it today you would earn a total of  2,136  from holding General Motors or generate 74.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.66%
Values	Daily Returns

General Motors  vs.  Reconnaissance Energy Africa

General Motors

Risk-Adjusted Performance

2 of 100

Insignificant

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.

Reconnaissance Energy

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with GM and Reconnaissance Energy

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

The idea behind General Motors and Reconnaissance Energy Africa 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.