Correlation Between GM and CoAsia Microelectronics

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

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

Diversification Opportunities for GM and CoAsia Microelectronics

-0.8

Correlation Coefficient

GM  CoAsia Microelectronics

Pay attention - limited upside

The 3 months correlation between GM and CoAsia is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CoAsia Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CoAsia Microelectronics 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 CoAsia Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CoAsia Microelectronics has no effect on the direction of GM i.e., GM and CoAsia Microelectronics go up and down completely randomly.

Pair Corralation between GM and CoAsia Microelectronics

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.74 times more return on investment than CoAsia Microelectronics. However, General Motors is 1.36 times less risky than CoAsia Microelectronics. It trades about 0.09 of its potential returns per unit of risk. CoAsia Microelectronics is currently generating about -0.04 per unit of risk. If you would invest  4,676  in General Motors on September 14, 2024 and sell it today you would earn a total of  575.00  from holding General Motors or generate 12.3% return on investment over 90 days.

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

General Motors  vs.  CoAsia Microelectronics

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.

CoAsia Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CoAsia Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with GM and CoAsia Microelectronics

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

The idea behind General Motors and CoAsia Microelectronics 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.