Correlation Between GM and AGL Energy

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

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

Diversification Opportunities for GM and AGL Energy

-0.15

Correlation Coefficient

GM  AGL Energy

Good diversification

The 3 months correlation between GM and AGL is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and AGL Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGL Energy Limited 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 AGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGL Energy Limited has no effect on the direction of GM i.e., GM and AGL Energy go up and down completely randomly.

Pair Corralation between GM and AGL Energy

Allowing for the 90-day total investment horizon GM is expected to generate 1.53 times less return on investment than AGL Energy. But when comparing it to its historical volatility, General Motors is 1.26 times less risky than AGL Energy. It trades about 0.04 of its potential returns per unit of risk. AGL Energy Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  537.00  in AGL Energy Limited on October 23, 2024 and sell it today you would earn a total of  168.00  from holding AGL Energy Limited or generate 31.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	54.14%
Values	Daily Returns

General Motors  vs.  AGL Energy Limited

General Motors

Risk-Adjusted Performance

0 of 100

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.

AGL Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGL Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AGL Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and AGL Energy

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

The idea behind General Motors and AGL Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.