Correlation Between GM and Hofseth Biocare

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

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

Diversification Opportunities for GM and Hofseth Biocare

-0.38

Correlation Coefficient

GM  Hofseth Biocare

Very good diversification

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

Pair Corralation between GM and Hofseth Biocare

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Hofseth Biocare. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.25 times less risky than Hofseth Biocare. The stock trades about -0.07 of its potential returns per unit of risk. The Hofseth Biocare ASA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Hofseth Biocare ASA on December 27, 2024 and sell it today you would earn a total of  77.00  from holding Hofseth Biocare ASA or generate 44.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

General Motors  vs.  Hofseth Biocare ASA

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Hofseth Biocare ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hofseth Biocare ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Hofseth Biocare disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Hofseth Biocare

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

The idea behind General Motors and Hofseth Biocare ASA 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.