Correlation Between GM and Techshine Electronics

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

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

Diversification Opportunities for GM and Techshine Electronics

-0.47

Correlation Coefficient

GM  Techshine Electronics

Very good diversification

The 3 months correlation between GM and Techshine is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Techshine Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techshine Electronics 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 Techshine Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techshine Electronics has no effect on the direction of GM i.e., GM and Techshine Electronics go up and down completely randomly.

Pair Corralation between GM and Techshine Electronics

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Techshine Electronics. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.45 times less risky than Techshine Electronics. The stock trades about -0.06 of its potential returns per unit of risk. The Techshine Electronics Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,125  in Techshine Electronics Co on December 29, 2024 and sell it today you would earn a total of  785.00  from holding Techshine Electronics Co or generate 36.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

General Motors  vs.  Techshine Electronics 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 abnormal 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.

Techshine Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Techshine Electronics Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Techshine Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Techshine Electronics

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

The idea behind General Motors and Techshine Electronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.