Correlation Between Dorman Products and GM

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

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

Diversification Opportunities for Dorman Products and GM

0.7

Correlation Coefficient

Dorman Products  GM

Poor diversification

The 3 months correlation between Dorman and GM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Dorman Products 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 Dorman Products are associated (or correlated) with GM. 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 Dorman Products i.e., Dorman Products and GM go up and down completely randomly.

Pair Corralation between Dorman Products and GM

Given the investment horizon of 90 days Dorman Products is expected to generate 0.64 times more return on investment than GM. However, Dorman Products is 1.57 times less risky than GM. It trades about -0.13 of its potential returns per unit of risk. General Motors is currently generating about -0.13 per unit of risk. If you would invest  13,980  in Dorman Products on November 27, 2024 and sell it today you would lose (1,423) from holding Dorman Products or give up 10.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Dorman Products  vs.  General Motors

Dorman Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dorman Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Dorman Products and GM

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

The idea behind Dorman Products and General Motors 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.

Check out your portfolio center.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.