Correlation Between GM and TTW PCL

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

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

Diversification Opportunities for GM and TTW PCL

-0.34

Correlation Coefficient

GM  TTW PCL

Very good diversification

The 3 months correlation between GM and TTW is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and TTW PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TTW PCL 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 TTW PCL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TTW PCL has no effect on the direction of GM i.e., GM and TTW PCL go up and down completely randomly.

Pair Corralation between GM and TTW PCL

Allowing for the 90-day total investment horizon GM is expected to generate 16.89 times less return on investment than TTW PCL. But when comparing it to its historical volatility, General Motors is 1.02 times less risky than TTW PCL. It trades about 0.0 of its potential returns per unit of risk. TTW PCL is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  23.00  in TTW PCL on December 18, 2024 and sell it today you would earn a total of  0.00  from holding TTW PCL or generate 0.0% return on investment over 90 days.

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

General Motors  vs.  TTW PCL

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.

TTW PCL

Risk-Adjusted Performance

Very Weak

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

Pair Trading with GM and TTW PCL

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

The idea behind General Motors and TTW PCL 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..