Correlation Between GM and SFP Tech

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

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

Diversification Opportunities for GM and SFP Tech

0.06

Correlation Coefficient

GM  SFP Tech

Significant diversification

The 3 months correlation between GM and SFP is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SFP Tech Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFP Tech Holdings 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 SFP Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFP Tech Holdings has no effect on the direction of GM i.e., GM and SFP Tech go up and down completely randomly.

Pair Corralation between GM and SFP Tech

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.07 times more return on investment than SFP Tech. However, GM is 1.07 times more volatile than SFP Tech Holdings. It trades about 0.09 of its potential returns per unit of risk. SFP Tech Holdings is currently generating about 0.05 per unit of risk. If you would invest  4,833  in General Motors on September 4, 2024 and sell it today you would earn a total of  671.00  from holding General Motors or generate 13.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

General Motors  vs.  SFP Tech Holdings

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

SFP Tech Holdings

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SFP Tech Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, SFP Tech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and SFP Tech

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

The idea behind General Motors and SFP Tech Holdings 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.