Correlation Between GM and Advanced International

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

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

Diversification Opportunities for GM and Advanced International

-0.67

Correlation Coefficient

GM  Advanced International

Excellent diversification

The 3 months correlation between GM and Advanced is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Advanced International Multite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced International 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 Advanced International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced International has no effect on the direction of GM i.e., GM and Advanced International go up and down completely randomly.

Pair Corralation between GM and Advanced International

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Advanced International. In addition to that, GM is 3.38 times more volatile than Advanced International Multitech. It trades about -0.03 of its total potential returns per unit of risk. Advanced International Multitech is currently generating about 0.3 per unit of volatility. If you would invest  7,280  in Advanced International Multitech on December 21, 2024 and sell it today you would earn a total of  920.00  from holding Advanced International Multitech or generate 12.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.67%
Values	Daily Returns

General Motors  vs.  Advanced International Multite

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.

Advanced International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced International Multitech are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Advanced International

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

The idea behind General Motors and Advanced International Multitech 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.