Correlation Between GM and Arctic Bioscience

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

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

Diversification Opportunities for GM and Arctic Bioscience

-0.39

Correlation Coefficient

GM  Arctic Bioscience

Very good diversification

The 3 months correlation between GM and Arctic is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Arctic Bioscience AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arctic Bioscience 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 Arctic Bioscience. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arctic Bioscience has no effect on the direction of GM i.e., GM and Arctic Bioscience go up and down completely randomly.

Pair Corralation between GM and Arctic Bioscience

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Arctic Bioscience. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 3.46 times less risky than Arctic Bioscience. The stock trades about -0.03 of its potential returns per unit of risk. The Arctic Bioscience AS is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  195.00  in Arctic Bioscience AS on December 26, 2024 and sell it today you would earn a total of  295.00  from holding Arctic Bioscience AS or generate 151.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Arctic Bioscience AS

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.

Arctic Bioscience

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arctic Bioscience AS are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Arctic Bioscience disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Arctic Bioscience

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

The idea behind General Motors and Arctic Bioscience AS 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.