Correlation Between GM and RMK Energy

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

Diversification Opportunities for GM and RMK Energy

-0.84

Correlation Coefficient

GM  RMK Energy

Pay attention - limited upside

The 3 months correlation between GM and RMK is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and RMK Energy PT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMK Energy PT 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 RMK Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMK Energy PT has no effect on the direction of GM i.e., GM and RMK Energy go up and down completely randomly.

Pair Corralation between GM and RMK Energy

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.19 times more return on investment than RMK Energy. However, GM is 1.19 times more volatile than RMK Energy PT. It trades about 0.09 of its potential returns per unit of risk. RMK Energy PT is currently generating about -0.08 per unit of risk. If you would invest  4,676  in General Motors on September 16, 2024 and sell it today you would earn a total of  577.00  from holding General Motors or generate 12.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

General Motors  vs.  RMK Energy PT

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 displayed solid returns over the last few months and may actually be approaching a breakup point.

RMK Energy PT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RMK Energy PT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with GM and RMK Energy

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

The idea behind General Motors and RMK Energy PT 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.