Correlation Between GM and Power Wind

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

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

Diversification Opportunities for GM and Power Wind

-0.24

Correlation Coefficient

GM  Power Wind

Very good diversification

The 3 months correlation between GM and Power is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Power Wind Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Wind Health 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 Power Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Wind Health has no effect on the direction of GM i.e., GM and Power Wind go up and down completely randomly.

Pair Corralation between GM and Power Wind

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Power Wind. In addition to that, GM is 1.21 times more volatile than Power Wind Health. It trades about -0.01 of its total potential returns per unit of risk. Power Wind Health is currently generating about 0.12 per unit of volatility. If you would invest  11,250  in Power Wind Health on December 19, 2024 and sell it today you would earn a total of  1,600  from holding Power Wind Health or generate 14.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

General Motors  vs.  Power Wind Health

General Motors

Risk-Adjusted Performance

Very Weak

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.

Power Wind Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power Wind Health are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Power Wind showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Power Wind

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

The idea behind General Motors and Power Wind Health 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.