Correlation Between GM and Davicom Semiconductor

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

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

Diversification Opportunities for GM and Davicom Semiconductor

-0.66

Correlation Coefficient

GM  Davicom Semiconductor

Excellent diversification

The 3 months correlation between GM and Davicom is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Davicom Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davicom Semiconductor 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 Davicom Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davicom Semiconductor has no effect on the direction of GM i.e., GM and Davicom Semiconductor go up and down completely randomly.

Pair Corralation between GM and Davicom Semiconductor

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Davicom Semiconductor. In addition to that, GM is 1.76 times more volatile than Davicom Semiconductor. It trades about -0.03 of its total potential returns per unit of risk. Davicom Semiconductor is currently generating about 0.0 per unit of volatility. If you would invest  2,935  in Davicom Semiconductor on December 27, 2024 and sell it today you would lose (5.00) from holding Davicom Semiconductor or give up 0.17% of portfolio value over 90 days.

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

General Motors  vs.  Davicom Semiconductor

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Davicom Semiconductor

Risk-Adjusted Performance

Very Weak

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

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

The idea behind General Motors and Davicom Semiconductor 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.