Correlation Between GM and Equity Commonwealth

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

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

Diversification Opportunities for GM and Equity Commonwealth

0.4

Correlation Coefficient

GM  Equity Commonwealth

Very weak diversification

The 3 months correlation between GM and Equity is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Equity Commonwealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Commonwealth 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 Equity Commonwealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Commonwealth has no effect on the direction of GM i.e., GM and Equity Commonwealth go up and down completely randomly.

Pair Corralation between GM and Equity Commonwealth

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.39 times more return on investment than Equity Commonwealth. However, GM is 1.39 times more volatile than Equity Commonwealth. It trades about -0.01 of its potential returns per unit of risk. Equity Commonwealth is currently generating about -0.08 per unit of risk. If you would invest  5,404  in General Motors on December 26, 2024 and sell it today you would lose (145.00) from holding General Motors or give up 2.68% of portfolio value over 90 days.

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

General Motors  vs.  Equity Commonwealth

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Equity Commonwealth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Commonwealth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with GM and Equity Commonwealth

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

The idea behind General Motors and Equity Commonwealth 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.