Correlation Between GM and Taiwan Cooperative

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

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

Diversification Opportunities for GM and Taiwan Cooperative

-0.81

Correlation Coefficient

GM  Taiwan Cooperative

Pay attention - limited upside

The 3 months correlation between GM and Taiwan is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Taiwan Cooperative Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Cooperative 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 Taiwan Cooperative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Cooperative has no effect on the direction of GM i.e., GM and Taiwan Cooperative go up and down completely randomly.

Pair Corralation between GM and Taiwan Cooperative

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Taiwan Cooperative. In addition to that, GM is 4.38 times more volatile than Taiwan Cooperative Financial. It trades about -0.15 of its total potential returns per unit of risk. Taiwan Cooperative Financial is currently generating about -0.03 per unit of volatility. If you would invest  2,510  in Taiwan Cooperative Financial on September 15, 2024 and sell it today you would lose (10.00) from holding Taiwan Cooperative Financial or give up 0.4% of portfolio value over 90 days.

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

General Motors  vs.  Taiwan Cooperative Financial

General Motors

Risk-Adjusted Performance

6 of 100

Modest

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.

Taiwan Cooperative

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind General Motors and Taiwan Cooperative Financial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.