Correlation Between GM and Reneo Pharmaceuticals

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

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

Diversification Opportunities for GM and Reneo Pharmaceuticals

-0.02

Correlation Coefficient

GM  Reneo Pharmaceuticals

Good diversification

The 3 months correlation between GM and Reneo is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Reneo Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reneo Pharmaceuticals 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 Reneo Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reneo Pharmaceuticals has no effect on the direction of GM i.e., GM and Reneo Pharmaceuticals go up and down completely randomly.

Pair Corralation between GM and Reneo Pharmaceuticals

Allowing for the 90-day total investment horizon GM is expected to generate 2.18 times less return on investment than Reneo Pharmaceuticals. But when comparing it to its historical volatility, General Motors is 3.0 times less risky than Reneo Pharmaceuticals. It trades about 0.05 of its potential returns per unit of risk. Reneo Pharmaceuticals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,570  in Reneo Pharmaceuticals on September 26, 2024 and sell it today you would lose (750.00) from holding Reneo Pharmaceuticals or give up 29.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.91%
Values	Daily Returns

General Motors  vs.  Reneo Pharmaceuticals

General Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 9 (%) 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.

Reneo Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Excellent

Over the last 90 days Reneo Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very unsteady technical indicators, Reneo Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Reneo Pharmaceuticals

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

The idea behind General Motors and Reneo Pharmaceuticals 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.