Correlation Between GM and Sarfati

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

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

Diversification Opportunities for GM and Sarfati

0.55

Correlation Coefficient

GM  Sarfati

Very weak diversification

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

Pair Corralation between GM and Sarfati

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Sarfati. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.29 times less risky than Sarfati. The stock trades about -0.12 of its potential returns per unit of risk. The Sarfati is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  402,000  in Sarfati on September 28, 2024 and sell it today you would earn a total of  17,300  from holding Sarfati or generate 4.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.0%
Values	Daily Returns

General Motors  vs.  Sarfati

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

Sarfati

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sarfati are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sarfati sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Sarfati

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

The idea behind General Motors and Sarfati 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 CEOs Directory module to screen CEOs from public companies around the world.