Correlation Between GM and Datatec

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

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

Diversification Opportunities for GM and Datatec

0.69

Correlation Coefficient

GM  Datatec

Poor diversification

The 3 months correlation between GM and Datatec is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Datatec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datatec 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 Datatec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datatec has no effect on the direction of GM i.e., GM and Datatec go up and down completely randomly.

Pair Corralation between GM and Datatec

Allowing for the 90-day total investment horizon GM is expected to generate 1.67 times less return on investment than Datatec. In addition to that, GM is 1.37 times more volatile than Datatec. It trades about 0.08 of its total potential returns per unit of risk. Datatec is currently generating about 0.18 per unit of volatility. If you would invest  366,600  in Datatec on September 5, 2024 and sell it today you would earn a total of  84,700  from holding Datatec or generate 23.1% 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.  Datatec

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 displayed solid returns over the last few months and may actually be approaching a breakup point.

Datatec

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datatec are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Datatec exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Datatec

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

The idea behind General Motors and Datatec 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 CEOs Directory module to screen CEOs from public companies around the world.