Correlation Between GM and Worley

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

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

Diversification Opportunities for GM and Worley

-0.77

Correlation Coefficient

GM  Worley

Pay attention - limited upside

The 3 months correlation between GM and Worley is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Worley Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Worley Limited 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 Worley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Worley Limited has no effect on the direction of GM i.e., GM and Worley go up and down completely randomly.

Pair Corralation between GM and Worley

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Worley. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.26 times less risky than Worley. The stock trades about -0.12 of its potential returns per unit of risk. The Worley Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  893.00  in Worley Limited on September 17, 2024 and sell it today you would lose (23.00) from holding Worley Limited or give up 2.58% of portfolio value over 90 days.

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

General Motors  vs.  Worley Limited

General Motors

Risk-Adjusted Performance

5 of 100

Modest

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.

Worley Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Worley Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GM and Worley

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

The idea behind General Motors and Worley Limited 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.