Correlation Between GM and Phoenix Materials

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

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

Diversification Opportunities for GM and Phoenix Materials

0.07

Correlation Coefficient

GM  Phoenix Materials

Significant diversification

The 3 months correlation between GM and Phoenix is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Phoenix Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phoenix Materials 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 Phoenix Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phoenix Materials has no effect on the direction of GM i.e., GM and Phoenix Materials go up and down completely randomly.

Pair Corralation between GM and Phoenix Materials

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Phoenix Materials. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.29 times less risky than Phoenix Materials. The stock trades about -0.03 of its potential returns per unit of risk. The Phoenix Materials Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  71,400  in Phoenix Materials Co on December 2, 2024 and sell it today you would lose (3,600) from holding Phoenix Materials Co or give up 5.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

General Motors  vs.  Phoenix Materials Co

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.

Phoenix Materials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Phoenix Materials Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Phoenix Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with GM and Phoenix Materials

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

The idea behind General Motors and Phoenix Materials 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.