Correlation Between GM and Coloplast

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

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

Diversification Opportunities for GM and Coloplast

0.3

Correlation Coefficient

GM  Coloplast

Weak diversification

The 3 months correlation between GM and Coloplast is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Coloplast AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coloplast AS 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 Coloplast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coloplast AS has no effect on the direction of GM i.e., GM and Coloplast go up and down completely randomly.

Pair Corralation between GM and Coloplast

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Coloplast. In addition to that, GM is 2.47 times more volatile than Coloplast AS. It trades about -0.06 of its total potential returns per unit of risk. Coloplast AS is currently generating about -0.1 per unit of volatility. If you would invest  78,620  in Coloplast AS on December 29, 2024 and sell it today you would lose (5,500) from holding Coloplast AS or give up 7.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

General Motors  vs.  Coloplast AS

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Coloplast AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coloplast AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with GM and Coloplast

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

The idea behind General Motors and Coloplast AS 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.