Correlation Between GM and Avrot Industries

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

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

Diversification Opportunities for GM and Avrot Industries

0.21

Correlation Coefficient

GM  Avrot Industries

Modest diversification

The 3 months correlation between GM and Avrot is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Avrot Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avrot Industries 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 Avrot Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avrot Industries has no effect on the direction of GM i.e., GM and Avrot Industries go up and down completely randomly.

Pair Corralation between GM and Avrot Industries

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Avrot Industries. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.25 times less risky than Avrot Industries. The stock trades about -0.07 of its potential returns per unit of risk. The Avrot Industries is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,950  in Avrot Industries on November 20, 2024 and sell it today you would lose (260.00) from holding Avrot Industries or give up 5.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	84.75%
Values	Daily Returns

General Motors  vs.  Avrot Industries

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Avrot Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avrot Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Avrot Industries 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 Avrot Industries

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

The idea behind General Motors and Avrot Industries 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.