Correlation Between GM and Transamerica Large

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

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

Diversification Opportunities for GM and Transamerica Large

0.8

Correlation Coefficient

GM  Transamerica Large

Very poor diversification

The 3 months correlation between GM and Transamerica is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Transamerica Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Value 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 Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Value has no effect on the direction of GM i.e., GM and Transamerica Large go up and down completely randomly.

Pair Corralation between GM and Transamerica Large

Allowing for the 90-day total investment horizon General Motors is expected to generate 4.25 times more return on investment than Transamerica Large. However, GM is 4.25 times more volatile than Transamerica Large Value. It trades about 0.08 of its potential returns per unit of risk. Transamerica Large Value is currently generating about 0.13 per unit of risk. If you would invest  4,741  in General Motors on September 17, 2024 and sell it today you would earn a total of  512.00  from holding General Motors or generate 10.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

General Motors  vs.  Transamerica Large Value

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Transamerica Large Value

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Transamerica Large

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

The idea behind General Motors and Transamerica Large Value 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.