Correlation Between GM and CITGO

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

By analyzing existing cross correlation between General Motors and CITGO Petroleum 7, you can compare the effects of market volatilities on GM and CITGO 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 CITGO. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CITGO.

Diversification Opportunities for GM and CITGO

0.24

Correlation Coefficient

GM  CITGO

Modest diversification

The 3 months correlation between GM and CITGO is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CITGO Petroleum 7 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITGO Petroleum 7 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 CITGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITGO Petroleum 7 has no effect on the direction of GM i.e., GM and CITGO go up and down completely randomly.

Pair Corralation between GM and CITGO

Allowing for the 90-day total investment horizon GM is expected to generate 41.53 times less return on investment than CITGO. But when comparing it to its historical volatility, General Motors is 34.83 times less risky than CITGO. It trades about 0.05 of its potential returns per unit of risk. CITGO Petroleum 7 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,805  in CITGO Petroleum 7 on September 24, 2024 and sell it today you would earn a total of  193.00  from holding CITGO Petroleum 7 or generate 1.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	78.51%
Values	Daily Returns

General Motors  vs.  CITGO Petroleum 7

General Motors

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 5 (%) 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.

CITGO Petroleum 7

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITGO Petroleum 7 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CITGO 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 CITGO

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

The idea behind General Motors and CITGO Petroleum 7 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.