Correlation Between Subaru Corp and GM

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

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

Diversification Opportunities for Subaru Corp and GM

-0.69

Correlation Coefficient

Subaru Corp  GM

Excellent diversification

The 3 months correlation between Subaru and GM is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Subaru Corp ADR and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Subaru Corp 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 Subaru Corp ADR 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 Subaru Corp i.e., Subaru Corp and GM go up and down completely randomly.

Pair Corralation between Subaru Corp and GM

Assuming the 90 days horizon Subaru Corp is expected to generate 1.71 times less return on investment than GM. But when comparing it to its historical volatility, Subaru Corp ADR is 1.16 times less risky than GM. It trades about 0.03 of its potential returns per unit of risk. General Motors is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,753  in General Motors on October 3, 2024 and sell it today you would earn a total of  1,574  from holding General Motors or generate 41.94% return on investment over 90 days.

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

Subaru Corp ADR  vs.  General Motors

Subaru Corp ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Subaru Corp ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Subaru Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

Pair Trading with Subaru Corp and GM

The main advantage of trading using opposite Subaru Corp and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subaru Corp 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 Subaru Corp ADR 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .