Correlation Between GM and Alta Equipment

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

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

Diversification Opportunities for GM and Alta Equipment

-0.45

Correlation Coefficient

GM  Alta Equipment

Very good diversification

The 3 months correlation between GM and Alta is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Alta Equipment Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alta Equipment Group 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 Alta Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alta Equipment Group has no effect on the direction of GM i.e., GM and Alta Equipment go up and down completely randomly.

Pair Corralation between GM and Alta Equipment

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Alta Equipment. In addition to that, GM is 5.25 times more volatile than Alta Equipment Group. It trades about -0.03 of its total potential returns per unit of risk. Alta Equipment Group is currently generating about 0.11 per unit of volatility. If you would invest  2,493  in Alta Equipment Group on December 26, 2024 and sell it today you would earn a total of  78.00  from holding Alta Equipment Group or generate 3.13% return on investment over 90 days.

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

General Motors  vs.  Alta Equipment Group

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.

Alta Equipment Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alta Equipment Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alta Equipment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Alta Equipment

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

The idea behind General Motors and Alta Equipment Group 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.