Correlation Between GM and CRH PLC

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

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

Diversification Opportunities for GM and CRH PLC

0.86

Correlation Coefficient

GM  CRH PLC

Very poor diversification

The 3 months correlation between GM and CRH is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CRH PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRH PLC ADR 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 CRH PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRH PLC ADR has no effect on the direction of GM i.e., GM and CRH PLC go up and down completely randomly.

Pair Corralation between GM and CRH PLC

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.18 times more return on investment than CRH PLC. However, GM is 2.18 times more volatile than CRH PLC ADR. It trades about 0.17 of its potential returns per unit of risk. CRH PLC ADR is currently generating about 0.26 per unit of risk. If you would invest  5,076  in General Motors on September 1, 2024 and sell it today you would earn a total of  483.00  from holding General Motors or generate 9.52% return on investment over 90 days.

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

General Motors  vs.  CRH PLC ADR

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

CRH PLC ADR

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CRH PLC ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, CRH PLC demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and CRH PLC

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

The idea behind General Motors and CRH PLC ADR 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 Anywhere module to track or share privately all of your investments from the convenience of any device.