Correlation Between GM and Century Financial

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

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

Diversification Opportunities for GM and Century Financial

-0.5

Correlation Coefficient

GM  Century Financial

Very good diversification

The 3 months correlation between GM and Century is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Century Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Financial Corp 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 Century Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Financial Corp has no effect on the direction of GM i.e., GM and Century Financial go up and down completely randomly.

Pair Corralation between GM and Century Financial

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Century Financial. In addition to that, GM is 1.43 times more volatile than Century Financial Corp. It trades about -0.01 of its total potential returns per unit of risk. Century Financial Corp is currently generating about 0.2 per unit of volatility. If you would invest  3,840  in Century Financial Corp on December 26, 2024 and sell it today you would earn a total of  856.00  from holding Century Financial Corp or generate 22.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Century Financial Corp

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Century Financial Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Century Financial Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Century Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Century Financial

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

The idea behind General Motors and Century Financial Corp 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.