Correlation Between GM and Gamuda Bhd

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

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

Diversification Opportunities for GM and Gamuda Bhd

0.31

Correlation Coefficient

GM  Gamuda Bhd

Weak diversification

The 3 months correlation between GM and Gamuda is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Gamuda Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamuda Bhd 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 Gamuda Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamuda Bhd has no effect on the direction of GM i.e., GM and Gamuda Bhd go up and down completely randomly.

Pair Corralation between GM and Gamuda Bhd

Allowing for the 90-day total investment horizon GM is expected to generate 1.34 times less return on investment than Gamuda Bhd. In addition to that, GM is 1.68 times more volatile than Gamuda Bhd. It trades about 0.09 of its total potential returns per unit of risk. Gamuda Bhd is currently generating about 0.21 per unit of volatility. If you would invest  393.00  in Gamuda Bhd on October 7, 2024 and sell it today you would earn a total of  77.00  from holding Gamuda Bhd or generate 19.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Gamuda Bhd

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.

Gamuda Bhd

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gamuda Bhd are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Gamuda Bhd disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Gamuda Bhd

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

The idea behind General Motors and Gamuda Bhd 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.