Correlation Between GM and WHA Utilities

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

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

Diversification Opportunities for GM and WHA Utilities

0.29

Correlation Coefficient

GM  WHA Utilities

Modest diversification

The 3 months correlation between GM and WHA is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and WHA Utilities and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WHA Utilities 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 WHA Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WHA Utilities has no effect on the direction of GM i.e., GM and WHA Utilities go up and down completely randomly.

Pair Corralation between GM and WHA Utilities

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the WHA Utilities. In addition to that, GM is 1.02 times more volatile than WHA Utilities and. It trades about -0.07 of its total potential returns per unit of risk. WHA Utilities and is currently generating about 0.02 per unit of volatility. If you would invest  476.00  in WHA Utilities and on September 29, 2024 and sell it today you would earn a total of  2.00  from holding WHA Utilities and or generate 0.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  WHA Utilities and

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

WHA Utilities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WHA Utilities and are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, WHA Utilities is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and WHA Utilities

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

The idea behind General Motors and WHA Utilities and 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.