Correlation Between GM and DPY

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

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

Diversification Opportunities for GM and DPY

0.52

Correlation Coefficient

GM  DPY

Very weak diversification

The 3 months correlation between GM and DPY is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and DPY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DPY 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 DPY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DPY has no effect on the direction of GM i.e., GM and DPY go up and down completely randomly.

Pair Corralation between GM and DPY

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the DPY. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 5.12 times less risky than DPY. The stock trades about -0.01 of its potential returns per unit of risk. The DPY is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  0.15  in DPY on December 26, 2024 and sell it today you would lose (0.06) from holding DPY or give up 38.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  DPY

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.

DPY

Risk-Adjusted Performance

Very Weak

Over the last 90 days DPY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, DPY is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and DPY

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

The idea behind General Motors and DPY 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.