Correlation Between GM and DGB Group

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

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

Diversification Opportunities for GM and DGB Group

0.66

Correlation Coefficient

GM  DGB Group

Poor diversification

The 3 months correlation between GM and DGB is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and DGB Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGB Group NV 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 DGB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGB Group NV has no effect on the direction of GM i.e., GM and DGB Group go up and down completely randomly.

Pair Corralation between GM and DGB Group

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the DGB Group. In addition to that, GM is 1.14 times more volatile than DGB Group NV. It trades about -0.11 of its total potential returns per unit of risk. DGB Group NV is currently generating about 0.4 per unit of volatility. If you would invest  75.00  in DGB Group NV on September 17, 2024 and sell it today you would earn a total of  15.00  from holding DGB Group NV or generate 20.0% return on investment over 90 days.

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

General Motors  vs.  DGB Group NV

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

DGB Group NV

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DGB Group NV are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, DGB Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and DGB Group

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

The idea behind General Motors and DGB Group NV 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.