Correlation Between GM and Arch Biopartners

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

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

Diversification Opportunities for GM and Arch Biopartners

0.56

Correlation Coefficient

GM  Arch Biopartners

Very weak diversification

The 3 months correlation between GM and Arch is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Arch Biopartners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Biopartners 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 Arch Biopartners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Biopartners has no effect on the direction of GM i.e., GM and Arch Biopartners go up and down completely randomly.

Pair Corralation between GM and Arch Biopartners

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.88 times more return on investment than Arch Biopartners. However, General Motors is 1.13 times less risky than Arch Biopartners. It trades about -0.01 of its potential returns per unit of risk. Arch Biopartners is currently generating about -0.09 per unit of risk. If you would invest  5,280  in General Motors on September 23, 2024 and sell it today you would lose (99.00) from holding General Motors or give up 1.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.73%
Values	Daily Returns

General Motors  vs.  Arch Biopartners

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arch Biopartners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Biopartners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Arch Biopartners may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Arch Biopartners

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

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