Correlation Between GM and Rosinbomb

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

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

Diversification Opportunities for GM and Rosinbomb

-0.18

Correlation Coefficient

GM  Rosinbomb

Good diversification

The 3 months correlation between GM and Rosinbomb is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Rosinbomb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rosinbomb 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 Rosinbomb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rosinbomb has no effect on the direction of GM i.e., GM and Rosinbomb go up and down completely randomly.

Pair Corralation between GM and Rosinbomb

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Rosinbomb. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 5.01 times less risky than Rosinbomb. The stock trades about -0.16 of its potential returns per unit of risk. The Rosinbomb is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  0.20  in Rosinbomb on September 14, 2024 and sell it today you would lose (0.02) from holding Rosinbomb or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Rosinbomb

General Motors

Risk-Adjusted Performance

6 of 100

OK

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.

Rosinbomb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rosinbomb has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with GM and Rosinbomb

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

The idea behind General Motors and Rosinbomb 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.