Correlation Between GM and Hanwha Solutions

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

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

Diversification Opportunities for GM and Hanwha Solutions

-0.66

Correlation Coefficient

GM  Hanwha Solutions

Excellent diversification

The 3 months correlation between GM and Hanwha is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Hanwha Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanwha Solutions 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 Hanwha Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanwha Solutions has no effect on the direction of GM i.e., GM and Hanwha Solutions go up and down completely randomly.

Pair Corralation between GM and Hanwha Solutions

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Hanwha Solutions. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.44 times less risky than Hanwha Solutions. The stock trades about -0.06 of its potential returns per unit of risk. The Hanwha Solutions is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,612,000  in Hanwha Solutions on December 28, 2024 and sell it today you would earn a total of  334,000  from holding Hanwha Solutions or generate 20.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

General Motors  vs.  Hanwha Solutions

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Hanwha Solutions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Solutions sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Hanwha Solutions

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

The idea behind General Motors and Hanwha Solutions 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.