Correlation Between GM and Tangerine Equity

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

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

Diversification Opportunities for GM and Tangerine Equity

0.53

Correlation Coefficient

GM  Tangerine Equity

Very weak diversification

The 3 months correlation between GM and Tangerine is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tangerine Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tangerine Equity Growth 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 Tangerine Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tangerine Equity Growth has no effect on the direction of GM i.e., GM and Tangerine Equity go up and down completely randomly.

Pair Corralation between GM and Tangerine Equity

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Tangerine Equity. In addition to that, GM is 1.87 times more volatile than Tangerine Equity Growth. It trades about -0.1 of its total potential returns per unit of risk. Tangerine Equity Growth is currently generating about 0.02 per unit of volatility. If you would invest  1,469  in Tangerine Equity Growth on October 2, 2024 and sell it today you would earn a total of  4.00  from holding Tangerine Equity Growth or generate 0.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Tangerine Equity Growth

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

Tangerine Equity Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tangerine Equity Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. Despite quite weak forward-looking signals, Tangerine Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Tangerine Equity

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

The idea behind General Motors and Tangerine Equity Growth 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.