Correlation Between GM and Astellas Pharma

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

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

Diversification Opportunities for GM and Astellas Pharma

-0.73

Correlation Coefficient

GM  Astellas Pharma

Pay attention - limited upside

The 3 months correlation between GM and Astellas is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Astellas Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Astellas Pharma 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 Astellas Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Astellas Pharma has no effect on the direction of GM i.e., GM and Astellas Pharma go up and down completely randomly.

Pair Corralation between GM and Astellas Pharma

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Astellas Pharma. In addition to that, GM is 1.9 times more volatile than Astellas Pharma. It trades about -0.13 of its total potential returns per unit of risk. Astellas Pharma is currently generating about -0.2 per unit of volatility. If you would invest  1,070  in Astellas Pharma on September 16, 2024 and sell it today you would lose (62.00) from holding Astellas Pharma or give up 5.79% of portfolio value over 90 days.

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

General Motors  vs.  Astellas Pharma

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Astellas Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Astellas Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GM and Astellas Pharma

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

The idea behind General Motors and Astellas Pharma 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.