Correlation Between GM and CHAMPION BREWERIES

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

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

Diversification Opportunities for GM and CHAMPION BREWERIES

0.7

Correlation Coefficient

GM  CHAMPION BREWERIES

Poor diversification

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

Pair Corralation between GM and CHAMPION BREWERIES

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the CHAMPION BREWERIES. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.01 times less risky than CHAMPION BREWERIES. The stock trades about -0.13 of its potential returns per unit of risk. The CHAMPION BREWERIES PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  378.00  in CHAMPION BREWERIES PLC on September 16, 2024 and sell it today you would earn a total of  12.00  from holding CHAMPION BREWERIES PLC or generate 3.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  CHAMPION BREWERIES PLC

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

CHAMPION BREWERIES PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHAMPION BREWERIES PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, CHAMPION BREWERIES displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and CHAMPION BREWERIES

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

The idea behind General Motors and CHAMPION BREWERIES PLC 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.