Correlation Between GM and Invion

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

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

Diversification Opportunities for GM and Invion

-0.3

Correlation Coefficient

GM  Invion

Very good diversification

The 3 months correlation between GM and Invion is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Invion Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invion Limited 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 Invion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invion Limited has no effect on the direction of GM i.e., GM and Invion go up and down completely randomly.

Pair Corralation between GM and Invion

Allowing for the 90-day total investment horizon GM is expected to generate 65.68 times less return on investment than Invion. But when comparing it to its historical volatility, General Motors is 51.26 times less risky than Invion. It trades about 0.12 of its potential returns per unit of risk. Invion Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Invion Limited on October 1, 2024 and sell it today you would lose (3.00) from holding Invion Limited or give up 15.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.97%
Values	Daily Returns

General Motors  vs.  Invion Limited

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

Invion Limited

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with GM and Invion

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

The idea behind General Motors and Invion Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.