Correlation Between GM and Lotes

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

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

Diversification Opportunities for GM and Lotes

0.68

Correlation Coefficient

GM  Lotes

Poor diversification

The 3 months correlation between GM and Lotes is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lotes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotes 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 Lotes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotes has no effect on the direction of GM i.e., GM and Lotes go up and down completely randomly.

Pair Corralation between GM and Lotes

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Lotes. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.21 times less risky than Lotes. The stock trades about -0.16 of its potential returns per unit of risk. The Lotes Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  174,000  in Lotes Co on September 14, 2024 and sell it today you would earn a total of  17,000  from holding Lotes Co or generate 9.77% return on investment over 90 days.

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

General Motors  vs.  Lotes Co

General Motors

Risk-Adjusted Performance

6 of 100

OK

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.

Lotes

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lotes Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lotes showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Lotes

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

The idea behind General Motors and Lotes 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.