Correlation Between GM and Peabody Energy

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

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

Diversification Opportunities for GM and Peabody Energy

0.51

Correlation Coefficient

GM  Peabody Energy

Very weak diversification

The 3 months correlation between GM and Peabody is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Peabody Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy Corp 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 Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy Corp has no effect on the direction of GM i.e., GM and Peabody Energy go up and down completely randomly.

Pair Corralation between GM and Peabody Energy

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.91 times more return on investment than Peabody Energy. However, General Motors is 1.1 times less risky than Peabody Energy. It trades about 0.08 of its potential returns per unit of risk. Peabody Energy Corp is currently generating about -0.01 per unit of risk. If you would invest  4,551  in General Motors on September 1, 2024 and sell it today you would earn a total of  1,008  from holding General Motors or generate 22.15% return on investment over 90 days.

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

General Motors  vs.  Peabody Energy Corp

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

Peabody Energy Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Peabody Energy Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Peabody Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with GM and Peabody Energy

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

The idea behind General Motors and Peabody Energy Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.