Correlation Between GM and Smartgiant Technology

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

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

Diversification Opportunities for GM and Smartgiant Technology

0.59

Correlation Coefficient

GM  Smartgiant Technology

Very weak diversification

The 3 months correlation between GM and Smartgiant is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Smartgiant Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smartgiant Technology 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 Smartgiant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smartgiant Technology has no effect on the direction of GM i.e., GM and Smartgiant Technology go up and down completely randomly.

Pair Corralation between GM and Smartgiant Technology

Allowing for the 90-day total investment horizon GM is expected to generate 7.75 times less return on investment than Smartgiant Technology. But when comparing it to its historical volatility, General Motors is 2.31 times less risky than Smartgiant Technology. It trades about 0.05 of its potential returns per unit of risk. Smartgiant Technology Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,922  in Smartgiant Technology Co on October 22, 2024 and sell it today you would earn a total of  2,377  from holding Smartgiant Technology Co or generate 123.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.8%
Values	Daily Returns

General Motors  vs.  Smartgiant Technology Co

General Motors

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Smartgiant Technology

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smartgiant Technology Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Smartgiant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Smartgiant Technology

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

The idea behind General Motors and Smartgiant Technology Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.