Correlation Between GM and Covalon Technologies

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

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

Diversification Opportunities for GM and Covalon Technologies

0.47

Correlation Coefficient

GM  Covalon Technologies

Very weak diversification

The 3 months correlation between GM and Covalon is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Covalon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covalon Technologies 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 Covalon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covalon Technologies has no effect on the direction of GM i.e., GM and Covalon Technologies go up and down completely randomly.

Pair Corralation between GM and Covalon Technologies

Allowing for the 90-day total investment horizon GM is expected to generate 1.87 times less return on investment than Covalon Technologies. But when comparing it to its historical volatility, General Motors is 2.58 times less risky than Covalon Technologies. It trades about 0.04 of its potential returns per unit of risk. Covalon Technologies is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  218.00  in Covalon Technologies on December 1, 2024 and sell it today you would earn a total of  42.00  from holding Covalon Technologies or generate 19.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

General Motors  vs.  Covalon Technologies

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 weak 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.

Covalon Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Covalon Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with GM and Covalon Technologies

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

The idea behind General Motors and Covalon Technologies 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.