Correlation Between GM and USCorp

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

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

Diversification Opportunities for GM and USCorp

0.0

Correlation Coefficient

GM  USCorp

Pay attention - limited upside

The 3 months correlation between GM and USCorp is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and USCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USCorp 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 USCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USCorp has no effect on the direction of GM i.e., GM and USCorp go up and down completely randomly.

Pair Corralation between GM and USCorp

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.29 times more return on investment than USCorp. However, General Motors is 3.45 times less risky than USCorp. It trades about 0.09 of its potential returns per unit of risk. USCorp is currently generating about -0.08 per unit of risk. If you would invest  3,508  in General Motors on September 12, 2024 and sell it today you would earn a total of  1,696  from holding General Motors or generate 48.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

General Motors  vs.  USCorp

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.

USCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days USCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, USCorp is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and USCorp

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

The idea behind General Motors and USCorp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.