Correlation Between GM and Jason Furniture

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

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

Diversification Opportunities for GM and Jason Furniture

0.4

Correlation Coefficient

GM  Jason Furniture

Very weak diversification

The 3 months correlation between GM and Jason is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Jason Furniture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jason Furniture 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 Jason Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jason Furniture has no effect on the direction of GM i.e., GM and Jason Furniture go up and down completely randomly.

Pair Corralation between GM and Jason Furniture

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.85 times more return on investment than Jason Furniture. However, General Motors is 1.18 times less risky than Jason Furniture. It trades about 0.05 of its potential returns per unit of risk. Jason Furniture is currently generating about -0.02 per unit of risk. If you would invest  3,297  in General Motors on September 19, 2024 and sell it today you would earn a total of  1,702  from holding General Motors or generate 51.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.17%
Values	Daily Returns

General Motors  vs.  Jason Furniture

General Motors

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Jason Furniture

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jason Furniture are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jason Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Jason Furniture

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

The idea behind General Motors and Jason Furniture 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.