Correlation Between GM and HMS Networks

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

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

Diversification Opportunities for GM and HMS Networks

-0.55

Correlation Coefficient

GM  HMS Networks

Excellent diversification

The 3 months correlation between GM and HMS is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HMS Networks AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMS Networks AB 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 HMS Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMS Networks AB has no effect on the direction of GM i.e., GM and HMS Networks go up and down completely randomly.

Pair Corralation between GM and HMS Networks

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the HMS Networks. In addition to that, GM is 1.16 times more volatile than HMS Networks AB. It trades about -0.01 of its total potential returns per unit of risk. HMS Networks AB is currently generating about 0.07 per unit of volatility. If you would invest  43,700  in HMS Networks AB on December 26, 2024 and sell it today you would earn a total of  3,660  from holding HMS Networks AB or generate 8.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  HMS Networks AB

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.

HMS Networks AB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HMS Networks AB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HMS Networks may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with GM and HMS Networks

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

The idea behind General Motors and HMS Networks AB 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.