Correlation Between GM and Dana

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

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

Diversification Opportunities for GM and Dana

-0.79

Correlation Coefficient

GM  Dana

Pay attention - limited upside

The 3 months correlation between GM and Dana is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Dana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Inc 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 Dana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Inc has no effect on the direction of GM i.e., GM and Dana go up and down completely randomly.

Pair Corralation between GM and Dana

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.86 times more return on investment than Dana. However, General Motors is 1.16 times less risky than Dana. It trades about -0.01 of its potential returns per unit of risk. Dana Inc is currently generating about -0.22 per unit of risk. If you would invest  4,950  in General Motors on December 1, 2024 and sell it today you would lose (37.00) from holding General Motors or give up 0.75% of portfolio value over 90 days.

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

General Motors  vs.  Dana Inc

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.

Dana Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dana displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Dana

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

The idea behind General Motors and Dana Inc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.