Correlation Between GM and MAGNUM DCORP

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

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

Diversification Opportunities for GM and MAGNUM DCORP

0.15

Correlation Coefficient

GM  MAGNUM DCORP

Average diversification

The 3 months correlation between GM and MAGNUM is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and MAGNUM DCORP INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAGNUM DCORP INC 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 MAGNUM DCORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAGNUM DCORP INC has no effect on the direction of GM i.e., GM and MAGNUM DCORP go up and down completely randomly.

Pair Corralation between GM and MAGNUM DCORP

Allowing for the 90-day total investment horizon GM is expected to generate 111.22 times less return on investment than MAGNUM DCORP. But when comparing it to its historical volatility, General Motors is 34.61 times less risky than MAGNUM DCORP. It trades about 0.05 of its potential returns per unit of risk. MAGNUM DCORP INC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4.40  in MAGNUM DCORP INC on September 19, 2024 and sell it today you would lose (1.19) from holding MAGNUM DCORP INC or give up 27.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.22%
Values	Daily Returns

General Motors  vs.  MAGNUM DCORP INC

General Motors

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) 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.

MAGNUM DCORP INC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MAGNUM DCORP INC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, MAGNUM DCORP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and MAGNUM DCORP

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

The idea behind General Motors and MAGNUM DCORP INC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.