Correlation Between GM and Solution Financial

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

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

Diversification Opportunities for GM and Solution Financial

-0.55

Correlation Coefficient

GM  Solution Financial

Excellent diversification

The 3 months correlation between GM and Solution is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Solution Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solution Financial 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 Solution Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solution Financial has no effect on the direction of GM i.e., GM and Solution Financial go up and down completely randomly.

Pair Corralation between GM and Solution Financial

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.91 times more return on investment than Solution Financial. However, General Motors is 1.1 times less risky than Solution Financial. It trades about 0.06 of its potential returns per unit of risk. Solution Financial is currently generating about 0.01 per unit of risk. If you would invest  4,793  in General Motors on September 21, 2024 and sell it today you would earn a total of  388.00  from holding General Motors or generate 8.1% return on investment over 90 days.

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

General Motors  vs.  Solution Financial

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Solution Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Solution Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Solution Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Solution Financial

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

The idea behind General Motors and Solution Financial 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.