Correlation Between GM and Eternit SA

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

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

Diversification Opportunities for GM and Eternit SA

-0.47

Correlation Coefficient

GM  Eternit SA

Very good diversification

The 3 months correlation between GM and Eternit is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Eternit SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternit 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 Eternit SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternit SA has no effect on the direction of GM i.e., GM and Eternit SA go up and down completely randomly.

Pair Corralation between GM and Eternit SA

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Eternit SA. In addition to that, GM is 1.94 times more volatile than Eternit SA. It trades about -0.06 of its total potential returns per unit of risk. Eternit SA is currently generating about -0.01 per unit of volatility. If you would invest  504.00  in Eternit SA on December 28, 2024 and sell it today you would lose (7.00) from holding Eternit SA or give up 1.39% of portfolio value over 90 days.

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

General Motors  vs.  Eternit 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.

Eternit SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eternit SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Eternit SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Eternit SA

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

The idea behind General Motors and Eternit 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.