Correlation Between GM and GUARANTY TRUST

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

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

Diversification Opportunities for GM and GUARANTY TRUST

0.74

Correlation Coefficient

GM  GUARANTY TRUST

Poor diversification

The 3 months correlation between GM and GUARANTY is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and GUARANTY TRUST HOLDING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GUARANTY TRUST HOLDING 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 GUARANTY TRUST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GUARANTY TRUST HOLDING has no effect on the direction of GM i.e., GM and GUARANTY TRUST go up and down completely randomly.

Pair Corralation between GM and GUARANTY TRUST

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the GUARANTY TRUST. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.13 times less risky than GUARANTY TRUST. The stock trades about -0.06 of its potential returns per unit of risk. The GUARANTY TRUST HOLDING is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  5,300  in GUARANTY TRUST HOLDING on September 28, 2024 and sell it today you would earn a total of  495.00  from holding GUARANTY TRUST HOLDING or generate 9.34% return on investment over 90 days.

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

General Motors  vs.  GUARANTY TRUST HOLDING

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

GUARANTY TRUST HOLDING

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GUARANTY TRUST HOLDING are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, GUARANTY TRUST displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and GUARANTY TRUST

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

The idea behind General Motors and GUARANTY TRUST HOLDING 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.