Correlation Between GM and 29Metals

Can any of the company-specific risk be diversified away by investing in both GM and 29Metals 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 29Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Motors and 29Metals, you can compare the effects of market volatilities on GM and 29Metals 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 29Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and 29Metals.

Diversification Opportunities for GM and 29Metals

-0.42

Correlation Coefficient

GM  29Metals

Very good diversification

The 3 months correlation between GM and 29Metals is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and 29Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 29Metals 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 29Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 29Metals has no effect on the direction of GM i.e., GM and 29Metals go up and down completely randomly.

Pair Corralation between GM and 29Metals

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.35 times more return on investment than 29Metals. However, General Motors is 2.89 times less risky than 29Metals. It trades about 0.05 of its potential returns per unit of risk. 29Metals is currently generating about -0.03 per unit of risk. If you would invest  3,778  in General Motors on September 2, 2024 and sell it today you would earn a total of  1,781  from holding General Motors or generate 47.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

General Motors  vs.  29Metals

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.

29Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 29Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, 29Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and 29Metals

The main advantage of trading using opposite GM and 29Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, 29Metals 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 29Metals will offset losses from the drop in 29Metals' long position.

The idea behind General Motors and 29Metals 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.