Correlation Between GM and GrafTech International

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

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

Diversification Opportunities for GM and GrafTech International

0.54

Correlation Coefficient

GM  GrafTech International

Very weak diversification

The 3 months correlation between GM and GrafTech is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and GrafTech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrafTech International 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 GrafTech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrafTech International has no effect on the direction of GM i.e., GM and GrafTech International go up and down completely randomly.

Pair Corralation between GM and GrafTech International

Allowing for the 90-day total investment horizon GM is expected to generate 1.28 times less return on investment than GrafTech International. But when comparing it to its historical volatility, General Motors is 3.05 times less risky than GrafTech International. It trades about 0.05 of its potential returns per unit of risk. GrafTech International is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  128.00  in GrafTech International on December 11, 2024 and sell it today you would lose (22.00) from holding GrafTech International or give up 17.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.89%
Values	Daily Returns

General Motors  vs.  GrafTech International

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.

GrafTech International

Risk-Adjusted Performance

Very Weak

Over the last 90 days GrafTech International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GM and GrafTech International

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

The idea behind General Motors and GrafTech International 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.