Correlation Between GM and Excellence Optoelectronic

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

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

Diversification Opportunities for GM and Excellence Optoelectronic

0.66

Correlation Coefficient

GM  Excellence Optoelectronic

Poor diversification

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

Pair Corralation between GM and Excellence Optoelectronic

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Excellence Optoelectronic. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.18 times less risky than Excellence Optoelectronic. The stock trades about -0.15 of its potential returns per unit of risk. The Excellence Optoelectronic is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,020  in Excellence Optoelectronic on September 15, 2024 and sell it today you would lose (255.00) from holding Excellence Optoelectronic or give up 8.44% of portfolio value over 90 days.

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

General Motors  vs.  Excellence Optoelectronic

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.

Excellence Optoelectronic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Excellence Optoelectronic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Excellence Optoelectronic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Excellence Optoelectronic

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

The idea behind General Motors and Excellence Optoelectronic 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.