Correlation Between GM and Columbia Large

Can any of the company-specific risk be diversified away by investing in both GM and Columbia Large 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 Large 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 Large Cap, you can compare the effects of market volatilities on GM and Columbia Large 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 Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Columbia Large.

Diversification Opportunities for GM and Columbia Large

0.79

Correlation Coefficient

GM  Columbia Large

Poor diversification

The 3 months correlation between GM and Columbia is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Columbia Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Large Cap 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Large Cap has no effect on the direction of GM i.e., GM and Columbia Large go up and down completely randomly.

Pair Corralation between GM and Columbia Large

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.86 times more return on investment than Columbia Large. However, GM is 1.86 times more volatile than Columbia Large Cap. It trades about 0.08 of its potential returns per unit of risk. Columbia Large Cap is currently generating about 0.1 per unit of risk. If you would invest  3,275  in General Motors on September 12, 2024 and sell it today you would earn a total of  1,999  from holding General Motors or generate 61.04% return on investment over 90 days.

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

General Motors  vs.  Columbia Large Cap

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 unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Columbia Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Columbia Large 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 Large

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

The idea behind General Motors and Columbia Large Cap 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.