Correlation Between GM and Advantech

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

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

Diversification Opportunities for GM and Advantech

-0.79

Correlation Coefficient

GM  Advantech

Pay attention - limited upside

The 3 months correlation between GM and Advantech is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Advantech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantech 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 Advantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantech has no effect on the direction of GM i.e., GM and Advantech go up and down completely randomly.

Pair Corralation between GM and Advantech

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Advantech. In addition to that, GM is 1.25 times more volatile than Advantech Co. It trades about -0.06 of its total potential returns per unit of risk. Advantech Co is currently generating about 0.12 per unit of volatility. If you would invest  34,550  in Advantech Co on December 28, 2024 and sell it today you would earn a total of  5,050  from holding Advantech Co or generate 14.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.67%
Values	Daily Returns

General Motors  vs.  Advantech Co

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Advantech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Advantech

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

The idea behind General Motors and Advantech Co 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.