Correlation Between GM and Mercuries Data

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

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

Diversification Opportunities for GM and Mercuries Data

0.03

Correlation Coefficient

GM  Mercuries Data

Significant diversification

The 3 months correlation between GM and Mercuries is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Mercuries Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercuries Data Systems 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 Mercuries Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercuries Data Systems has no effect on the direction of GM i.e., GM and Mercuries Data go up and down completely randomly.

Pair Corralation between GM and Mercuries Data

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.18 times more return on investment than Mercuries Data. However, GM is 1.18 times more volatile than Mercuries Data Systems. It trades about 0.09 of its potential returns per unit of risk. Mercuries Data Systems is currently generating about 0.02 per unit of risk. If you would invest  4,676  in General Motors on September 15, 2024 and sell it today you would earn a total of  577.00  from holding General Motors or generate 12.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Mercuries Data Systems

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Mercuries Data Systems

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mercuries Data Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Mercuries Data is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with GM and Mercuries Data

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

The idea behind General Motors and Mercuries Data Systems 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.