Correlation Between GM and EMERCOIN

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

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

Diversification Opportunities for GM and EMERCOIN

0.63

Correlation Coefficient

GM  EMERCOIN

Poor diversification

The 3 months correlation between GM and EMERCOIN is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and EMERCOIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMERCOIN 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 EMERCOIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMERCOIN has no effect on the direction of GM i.e., GM and EMERCOIN go up and down completely randomly.

Pair Corralation between GM and EMERCOIN

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the EMERCOIN. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 8.71 times less risky than EMERCOIN. The stock trades about -0.07 of its potential returns per unit of risk. The EMERCOIN is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  0.65  in EMERCOIN on December 29, 2024 and sell it today you would lose (0.55) from holding EMERCOIN or give up 84.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

General Motors  vs.  EMERCOIN

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 abnormal 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.

EMERCOIN

Risk-Adjusted Performance

Very Weak

Over the last 90 days EMERCOIN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unsteady fundamental indicators, EMERCOIN demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and EMERCOIN

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

The idea behind General Motors and EMERCOIN 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.