Correlation Between GM and STPI Public

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

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

Diversification Opportunities for GM and STPI Public

-0.57

Correlation Coefficient

GM  STPI Public

Excellent diversification

The 3 months correlation between GM and STPI is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and STPI Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STPI Public 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 STPI Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STPI Public has no effect on the direction of GM i.e., GM and STPI Public go up and down completely randomly.

Pair Corralation between GM and STPI Public

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.16 times more return on investment than STPI Public. However, GM is 1.16 times more volatile than STPI Public. It trades about 0.09 of its potential returns per unit of risk. STPI Public is currently generating about -0.06 per unit of risk. If you would invest  4,676  in General Motors on September 14, 2024 and sell it today you would earn a total of  575.00  from holding General Motors or generate 12.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.75%
Values	Daily Returns

General Motors  vs.  STPI Public

General Motors

Risk-Adjusted Performance

6 of 100

Modest

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.

STPI Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STPI Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with GM and STPI Public

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

The idea behind General Motors and STPI Public 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.