Correlation Between GM and Keum Kang

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

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

Diversification Opportunities for GM and Keum Kang

-0.33

Correlation Coefficient

GM  Keum Kang

Very good diversification

The 3 months correlation between GM and Keum is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Keum Kang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keum Kang Steel 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 Keum Kang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keum Kang Steel has no effect on the direction of GM i.e., GM and Keum Kang go up and down completely randomly.

Pair Corralation between GM and Keum Kang

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Keum Kang. In addition to that, GM is 1.53 times more volatile than Keum Kang Steel. It trades about -0.03 of its total potential returns per unit of risk. Keum Kang Steel is currently generating about 0.03 per unit of volatility. If you would invest  395,500  in Keum Kang Steel on December 27, 2024 and sell it today you would earn a total of  7,500  from holding Keum Kang Steel or generate 1.9% return on investment over 90 days.

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

General Motors  vs.  Keum Kang Steel

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Keum Kang Steel

Risk-Adjusted Performance

Weak

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

Pair Trading with GM and Keum Kang

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

The idea behind General Motors and Keum Kang Steel 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.