Correlation Between GM and Columbia Select

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

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

Diversification Opportunities for GM and Columbia Select

-0.7

Correlation Coefficient

GM  Columbia Select

Excellent diversification

The 3 months correlation between GM and Columbia is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Columbia Select Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Select Global 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 Columbia Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Select Global has no effect on the direction of GM i.e., GM and Columbia Select go up and down completely randomly.

Pair Corralation between GM and Columbia Select

Allowing for the 90-day total investment horizon GM is expected to generate 1.59 times less return on investment than Columbia Select. In addition to that, GM is 3.45 times more volatile than Columbia Select Global. It trades about 0.03 of its total potential returns per unit of risk. Columbia Select Global is currently generating about 0.15 per unit of volatility. If you would invest  818.00  in Columbia Select Global on October 13, 2024 and sell it today you would earn a total of  114.00  from holding Columbia Select Global or generate 13.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	92.31%
Values	Daily Returns

General Motors  vs.  Columbia Select Global

General Motors

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Columbia Select Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Columbia Select Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Columbia Select 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 Columbia Select

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

The idea behind General Motors and Columbia Select Global 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.