Correlation Between GM and Garuda Construction

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

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

Diversification Opportunities for GM and Garuda Construction

-0.38

Correlation Coefficient

GM  Garuda Construction

Very good diversification

The 3 months correlation between GM and Garuda is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Garuda Construction Engineerin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Construction 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 Garuda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Construction has no effect on the direction of GM i.e., GM and Garuda Construction go up and down completely randomly.

Pair Corralation between GM and Garuda Construction

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.57 times more return on investment than Garuda Construction. However, General Motors is 1.74 times less risky than Garuda Construction. It trades about 0.08 of its potential returns per unit of risk. Garuda Construction Engineering is currently generating about -0.09 per unit of risk. If you would invest  4,966  in General Motors on August 30, 2024 and sell it today you would earn a total of  584.00  from holding General Motors or generate 11.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.0%
Values	Daily Returns

General Motors  vs.  Garuda Construction Engineerin

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Garuda Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Garuda Construction Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GM and Garuda Construction

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

The idea behind General Motors and Garuda Construction Engineering 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.