Correlation Between GM and AAA Technologies

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

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

Diversification Opportunities for GM and AAA Technologies

0.62

Correlation Coefficient

GM  AAA Technologies

Poor diversification

The 3 months correlation between GM and AAA is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and AAA Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAA Technologies 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 AAA Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAA Technologies has no effect on the direction of GM i.e., GM and AAA Technologies go up and down completely randomly.

Pair Corralation between GM and AAA Technologies

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.0 times more return on investment than AAA Technologies. However, General Motors is 1.0 times less risky than AAA Technologies. It trades about -0.07 of its potential returns per unit of risk. AAA Technologies Limited is currently generating about -0.12 per unit of risk. If you would invest  5,475  in General Motors on November 20, 2024 and sell it today you would lose (638.00) from holding General Motors or give up 11.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.16%
Values	Daily Returns

General Motors  vs.  AAA Technologies Limited

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

AAA Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAA Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with GM and AAA Technologies

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

The idea behind General Motors and AAA Technologies 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.