Correlation Between GM and Eastern Commercial

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

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

Diversification Opportunities for GM and Eastern Commercial

0.12

Correlation Coefficient

GM  Eastern Commercial

Average diversification

The 3 months correlation between GM and Eastern is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Eastern Commercial Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Commercial 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 Eastern Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Commercial has no effect on the direction of GM i.e., GM and Eastern Commercial go up and down completely randomly.

Pair Corralation between GM and Eastern Commercial

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Eastern Commercial. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.17 times less risky than Eastern Commercial. The stock trades about -0.07 of its potential returns per unit of risk. The Eastern Commercial Leasing is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  95.00  in Eastern Commercial Leasing on December 27, 2024 and sell it today you would lose (11.00) from holding Eastern Commercial Leasing or give up 11.58% of portfolio value over 90 days.

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

General Motors  vs.  Eastern Commercial Leasing

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Eastern Commercial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Commercial Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with GM and Eastern Commercial

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

The idea behind General Motors and Eastern Commercial Leasing 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.