Correlation Between GM and Kolon Life

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

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

Diversification Opportunities for GM and Kolon Life

-0.43

Correlation Coefficient

GM  Kolon Life

Very good diversification

The 3 months correlation between GM and Kolon is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kolon Life Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kolon Life Science 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 Kolon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kolon Life Science has no effect on the direction of GM i.e., GM and Kolon Life go up and down completely randomly.

Pair Corralation between GM and Kolon Life

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.13 times more return on investment than Kolon Life. However, GM is 1.13 times more volatile than Kolon Life Science. It trades about 0.08 of its potential returns per unit of risk. Kolon Life Science is currently generating about 0.04 per unit of risk. If you would invest  4,852  in General Motors on September 13, 2024 and sell it today you would earn a total of  360.50  from holding General Motors or generate 7.43% return on investment over 90 days.

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

General Motors  vs.  Kolon Life Science

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.

Kolon Life Science

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kolon Life Science are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kolon Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Kolon Life

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

The idea behind General Motors and Kolon Life Science 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.