Correlation Between GM and Energisa

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

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

Diversification Opportunities for GM and Energisa

-0.49

Correlation Coefficient

GM  Energisa

Very good diversification

The 3 months correlation between GM and Energisa is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Energisa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energisa SA 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 Energisa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energisa SA has no effect on the direction of GM i.e., GM and Energisa go up and down completely randomly.

Pair Corralation between GM and Energisa

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Energisa. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.26 times less risky than Energisa. The stock trades about -0.07 of its potential returns per unit of risk. The Energisa SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,060  in Energisa SA on December 27, 2024 and sell it today you would earn a total of  127.00  from holding Energisa SA or generate 11.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Energisa SA

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.

Energisa SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energisa SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energisa unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Energisa

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

The idea behind General Motors and Energisa SA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.