Correlation Between GM and Coronation Top

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

By analyzing existing cross correlation between General Motors and Coronation Top 20, you can compare the effects of market volatilities on GM and Coronation Top 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 Coronation Top. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Coronation Top.

Diversification Opportunities for GM and Coronation Top

0.21

Correlation Coefficient

GM  Coronation Top

Modest diversification

The 3 months correlation between GM and Coronation is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Coronation Top 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coronation Top 20 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 Coronation Top. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coronation Top 20 has no effect on the direction of GM i.e., GM and Coronation Top go up and down completely randomly.

Pair Corralation between GM and Coronation Top

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.86 times more return on investment than Coronation Top. However, GM is 1.86 times more volatile than Coronation Top 20. It trades about 0.04 of its potential returns per unit of risk. Coronation Top 20 is currently generating about -0.1 per unit of risk. If you would invest  5,034  in General Motors on October 20, 2024 and sell it today you would earn a total of  63.00  from holding General Motors or generate 1.25% return on investment over 90 days.

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

General Motors  vs.  Coronation Top 20

General Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Coronation Top 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coronation Top 20 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest inconsistent performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with GM and Coronation Top

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

The idea behind General Motors and Coronation Top 20 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.