Correlation Between GM and Datalex

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

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

Diversification Opportunities for GM and Datalex

-0.25

Correlation Coefficient

GM  Datalex

Very good diversification

The 3 months correlation between GM and Datalex is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Datalex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datalex 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 Datalex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datalex has no effect on the direction of GM i.e., GM and Datalex go up and down completely randomly.

Pair Corralation between GM and Datalex

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Datalex. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.23 times less risky than Datalex. The stock trades about -0.08 of its potential returns per unit of risk. The Datalex is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Datalex on October 22, 2024 and sell it today you would earn a total of  0.00  from holding Datalex or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

General Motors  vs.  Datalex

General Motors

Risk-Adjusted Performance

0 of 100

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.

Datalex

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Datalex are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Datalex is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GM and Datalex

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

The idea behind General Motors and Datalex 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.