Correlation Between GM and Evolution

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

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

Diversification Opportunities for GM and Evolution

0.0

Correlation Coefficient

GM  Evolution

Pay attention - limited upside

The 3 months correlation between GM and Evolution is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB 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 Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of GM i.e., GM and Evolution go up and down completely randomly.

Pair Corralation between GM and Evolution

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Evolution. In addition to that, GM is 1.17 times more volatile than Evolution AB. It trades about -0.06 of its total potential returns per unit of risk. Evolution AB is currently generating about 0.02 per unit of volatility. If you would invest  7,595  in Evolution AB on December 28, 2024 and sell it today you would earn a total of  131.00  from holding Evolution AB or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Evolution AB

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.

Evolution AB

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Evolution is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Evolution

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

The idea behind General Motors and Evolution AB 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.