Correlation Between GM and Travel Investment

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

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

Diversification Opportunities for GM and Travel Investment

-0.7

Correlation Coefficient

GM  Travel Investment

Excellent diversification

The 3 months correlation between GM and Travel is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Travel Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Travel Investment 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 Travel Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Travel Investment has no effect on the direction of GM i.e., GM and Travel Investment go up and down completely randomly.

Pair Corralation between GM and Travel Investment

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Travel Investment. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.89 times less risky than Travel Investment. The stock trades about -0.07 of its potential returns per unit of risk. The Travel Investment and is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  738,000  in Travel Investment and on September 29, 2024 and sell it today you would earn a total of  31,000  from holding Travel Investment and or generate 4.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

General Motors  vs.  Travel Investment and

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

Travel Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Travel Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Travel Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Travel Investment

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

The idea behind General Motors and Travel Investment and 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.