Correlation Between GM and Brinker International

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

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

Diversification Opportunities for GM and Brinker International

0.73

Correlation Coefficient

GM  Brinker International

Poor diversification

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

Pair Corralation between GM and Brinker International

Allowing for the 90-day total investment horizon GM is expected to generate 3.36 times less return on investment than Brinker International. But when comparing it to its historical volatility, General Motors is 1.34 times less risky than Brinker International. It trades about 0.13 of its potential returns per unit of risk. Brinker International is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  7,050  in Brinker International on October 2, 2024 and sell it today you would earn a total of  6,150  from holding Brinker International or generate 87.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

General Motors  vs.  Brinker International

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.

Brinker International

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Brinker International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Brinker International

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

The idea behind General Motors and Brinker International 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.