Correlation Between GM and AGP

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

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

Diversification Opportunities for GM and AGP

0.74

Correlation Coefficient

GM  AGP

Poor diversification

The 3 months correlation between GM and AGP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and AGP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGP 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 AGP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGP has no effect on the direction of GM i.e., GM and AGP go up and down completely randomly.

Pair Corralation between GM and AGP

Allowing for the 90-day total investment horizon GM is expected to generate 2.15 times less return on investment than AGP. But when comparing it to its historical volatility, General Motors is 1.1 times less risky than AGP. It trades about 0.05 of its potential returns per unit of risk. AGP is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  6,016  in AGP on September 28, 2024 and sell it today you would earn a total of  10,459  from holding AGP or generate 173.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.38%
Values	Daily Returns

General Motors  vs.  AGP

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

AGP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AGP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, AGP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and AGP

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

The idea behind General Motors and AGP 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.