Correlation Between GM and Egyptian Gulf

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

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

Diversification Opportunities for GM and Egyptian Gulf

0.12

Correlation Coefficient

GM  Egyptian Gulf

Average diversification

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

Pair Corralation between GM and Egyptian Gulf

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.15 times more return on investment than Egyptian Gulf. However, GM is 1.15 times more volatile than Egyptian Gulf Bank. It trades about 0.09 of its potential returns per unit of risk. Egyptian Gulf Bank is currently generating about -0.05 per unit of risk. If you would invest  4,676  in General Motors on September 15, 2024 and sell it today you would earn a total of  577.00  from holding General Motors or generate 12.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	82.81%
Values	Daily Returns

General Motors  vs.  Egyptian Gulf Bank

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.

Egyptian Gulf Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Egyptian Gulf Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with GM and Egyptian Gulf

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

The idea behind General Motors and Egyptian Gulf Bank 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.