Correlation Between GM and TCI

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

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

Diversification Opportunities for GM and TCI

-0.6

Correlation Coefficient

GM  TCI

Excellent diversification

The 3 months correlation between GM and TCI is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and TCI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCI Co 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 TCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCI Co has no effect on the direction of GM i.e., GM and TCI go up and down completely randomly.

Pair Corralation between GM and TCI

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.87 times more return on investment than TCI. However, GM is 1.87 times more volatile than TCI Co. It trades about 0.09 of its potential returns per unit of risk. TCI Co is currently generating about -0.08 per unit of risk. If you would invest  4,676  in General Motors on September 15, 2024 and sell it today you would earn a total of  577.00  from holding General Motors or generate 12.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  TCI Co

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.

TCI Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TCI Co 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 TCI

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

The idea behind General Motors and TCI 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.