Correlation Between GM and Diamondrock Hospitality

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

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

Diversification Opportunities for GM and Diamondrock Hospitality

0.65

Correlation Coefficient

GM  Diamondrock Hospitality

Poor diversification

The 3 months correlation between GM and Diamondrock is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Diamondrock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of GM i.e., GM and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between GM and Diamondrock Hospitality

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Diamondrock Hospitality. In addition to that, GM is 1.51 times more volatile than Diamondrock Hospitality. It trades about -0.11 of its total potential returns per unit of risk. Diamondrock Hospitality is currently generating about -0.11 per unit of volatility. If you would invest  905.00  in Diamondrock Hospitality on November 29, 2024 and sell it today you would lose (88.00) from holding Diamondrock Hospitality or give up 9.72% of portfolio value over 90 days.

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

General Motors  vs.  Diamondrock Hospitality

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 weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Diamondrock Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondrock Hospitality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with GM and Diamondrock Hospitality

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

The idea behind General Motors and Diamondrock Hospitality 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.