Correlation Between GM and Big Ridge

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

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

Diversification Opportunities for GM and Big Ridge

0.23

Correlation Coefficient

GM  Big Ridge

Modest diversification

The 3 months correlation between GM and Big is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Big Ridge Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Ridge Gold 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 Big Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Ridge Gold has no effect on the direction of GM i.e., GM and Big Ridge go up and down completely randomly.

Pair Corralation between GM and Big Ridge

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.68 times more return on investment than Big Ridge. However, General Motors is 1.48 times less risky than Big Ridge. It trades about -0.09 of its potential returns per unit of risk. Big Ridge Gold is currently generating about -0.1 per unit of risk. If you would invest  5,475  in General Motors on September 21, 2024 and sell it today you would lose (306.50) from holding General Motors or give up 5.6% of portfolio value over 90 days.

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

General Motors  vs.  Big Ridge Gold

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.

Big Ridge Gold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Ridge Gold are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Big Ridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Big Ridge

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

The idea behind General Motors and Big Ridge Gold 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.