Correlation Between GM and Sakura Development

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

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

Diversification Opportunities for GM and Sakura Development

0.34

Correlation Coefficient

GM  Sakura Development

Weak diversification

The 3 months correlation between GM and Sakura is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Sakura Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sakura Development 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 Sakura Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sakura Development has no effect on the direction of GM i.e., GM and Sakura Development go up and down completely randomly.

Pair Corralation between GM and Sakura Development

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Sakura Development. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.13 times less risky than Sakura Development. The stock trades about -0.12 of its potential returns per unit of risk. The Sakura Development Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  5,090  in Sakura Development Co on September 20, 2024 and sell it today you would lose (60.00) from holding Sakura Development Co or give up 1.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Sakura Development Co

General Motors

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sakura Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sakura Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Sakura Development 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 Sakura Development

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

The idea behind General Motors and Sakura Development 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.