Correlation Between GM and GSTechnologies

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

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

Diversification Opportunities for GM and GSTechnologies

0.62

Correlation Coefficient

GM  GSTechnologies

Poor diversification

The 3 months correlation between GM and GSTechnologies is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and GSTechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSTechnologies 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 GSTechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSTechnologies has no effect on the direction of GM i.e., GM and GSTechnologies go up and down completely randomly.

Pair Corralation between GM and GSTechnologies

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the GSTechnologies. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.57 times less risky than GSTechnologies. The stock trades about -0.23 of its potential returns per unit of risk. The GSTechnologies is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  137.00  in GSTechnologies on September 23, 2024 and sell it today you would earn a total of  41.00  from holding GSTechnologies or generate 29.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  GSTechnologies

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GSTechnologies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GSTechnologies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, GSTechnologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and GSTechnologies

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

The idea behind General Motors and GSTechnologies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.