Correlation Between GM and Sun Max

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

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

Diversification Opportunities for GM and Sun Max

0.58

Correlation Coefficient

GM  Sun Max

Very weak diversification

The 3 months correlation between GM and Sun is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Sun Max Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Max Tech 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 Sun Max. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Max Tech has no effect on the direction of GM i.e., GM and Sun Max go up and down completely randomly.

Pair Corralation between GM and Sun Max

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.2 times more return on investment than Sun Max. However, GM is 1.2 times more volatile than Sun Max Tech. It trades about 0.1 of its potential returns per unit of risk. Sun Max Tech is currently generating about 0.05 per unit of risk. If you would invest  4,602  in General Motors on September 12, 2024 and sell it today you would earn a total of  672.00  from holding General Motors or generate 14.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

General Motors  vs.  Sun Max Tech

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 unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Sun Max Tech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Max Tech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Sun Max 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 Sun Max

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

The idea behind General Motors and Sun Max Tech 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.