Correlation Between Diversified Energy and General Motors

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

By analyzing existing cross correlation between Diversified Energy and General Motors Co, you can compare the effects of market volatilities on Diversified Energy and General Motors 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 Diversified Energy with a short position of General Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Energy and General Motors.

Diversification Opportunities for Diversified Energy and General Motors

0.65

Correlation Coefficient

Diversified Energy  General Motors

Poor diversification

The 3 months correlation between Diversified and General is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Energy and General Motors Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Diversified Energy 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 Diversified Energy are associated (or correlated) with General Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Diversified Energy i.e., Diversified Energy and General Motors go up and down completely randomly.

Pair Corralation between Diversified Energy and General Motors

Assuming the 90 days trading horizon Diversified Energy is expected to generate 22.38 times more return on investment than General Motors. However, Diversified Energy is 22.38 times more volatile than General Motors Co. It trades about 0.04 of its potential returns per unit of risk. General Motors Co is currently generating about 0.04 per unit of risk. If you would invest  220,701  in Diversified Energy on September 26, 2024 and sell it today you would lose (94,801) from holding Diversified Energy or give up 42.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.96%
Values	Daily Returns

Diversified Energy  vs.  General Motors Co

Diversified Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, General Motors unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diversified Energy and General Motors

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

The idea behind Diversified Energy and General Motors Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.