Correlation Between GM and ESSEX

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

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

Diversification Opportunities for GM and ESSEX

0.08

Correlation Coefficient

GM  ESSEX

Significant diversification

The 3 months correlation between GM and ESSEX is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ESSEX PORTFOLIO L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSEX PORTFOLIO L 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 ESSEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSEX PORTFOLIO L has no effect on the direction of GM i.e., GM and ESSEX go up and down completely randomly.

Pair Corralation between GM and ESSEX

Allowing for the 90-day total investment horizon General Motors is expected to generate 11.94 times more return on investment than ESSEX. However, GM is 11.94 times more volatile than ESSEX PORTFOLIO L. It trades about 0.06 of its potential returns per unit of risk. ESSEX PORTFOLIO L is currently generating about -0.01 per unit of risk. If you would invest  4,536  in General Motors on September 25, 2024 and sell it today you would earn a total of  645.00  from holding General Motors or generate 14.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	89.6%
Values	Daily Returns

General Motors  vs.  ESSEX PORTFOLIO L

General Motors

Risk-Adjusted Performance

7 of 100

Modest

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 weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

ESSEX PORTFOLIO L

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind General Motors and ESSEX PORTFOLIO L 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.