Correlation Between GM and Eastern Platinum

Can any of the company-specific risk be diversified away by investing in both GM and Eastern Platinum 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 Platinum 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 Platinum Limited, you can compare the effects of market volatilities on GM and Eastern Platinum 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 Platinum. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Eastern Platinum.

Diversification Opportunities for GM and Eastern Platinum

-0.5

Correlation Coefficient

GM  Eastern Platinum

Very good diversification

The 3 months correlation between GM and Eastern is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Eastern Platinum Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Platinum 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 Platinum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Platinum has no effect on the direction of GM i.e., GM and Eastern Platinum go up and down completely randomly.

Pair Corralation between GM and Eastern Platinum

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Eastern Platinum. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.24 times less risky than Eastern Platinum. The stock trades about -0.07 of its potential returns per unit of risk. The Eastern Platinum Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Eastern Platinum Limited on December 27, 2024 and sell it today you would earn a total of  1.00  from holding Eastern Platinum Limited or generate 6.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

General Motors  vs.  Eastern Platinum Limited

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 Platinum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Platinum Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Eastern Platinum displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Eastern Platinum

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

The idea behind General Motors and Eastern Platinum Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.