Correlation Between GM and SRI TRANG

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

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

Diversification Opportunities for GM and SRI TRANG

0.46

Correlation Coefficient

GM  SRI TRANG

Very weak diversification

The 3 months correlation between GM and SRI is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SRI TRANG GLOVES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SRI TRANG GLOVES 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 SRI TRANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SRI TRANG GLOVES has no effect on the direction of GM i.e., GM and SRI TRANG go up and down completely randomly.

Pair Corralation between GM and SRI TRANG

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the SRI TRANG. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.79 times less risky than SRI TRANG. The stock trades about -0.14 of its potential returns per unit of risk. The SRI TRANG GLOVES is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  746.00  in SRI TRANG GLOVES on September 12, 2024 and sell it today you would earn a total of  314.00  from holding SRI TRANG GLOVES or generate 42.09% return on investment over 90 days.

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

General Motors  vs.  SRI TRANG GLOVES

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

SRI TRANG GLOVES

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SRI TRANG GLOVES are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting technical and fundamental indicators, SRI TRANG sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and SRI TRANG

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

The idea behind General Motors and SRI TRANG GLOVES 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.