Correlation Between GM and Hanover Bancorp

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

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

Diversification Opportunities for GM and Hanover Bancorp

0.57

Correlation Coefficient

GM  Hanover Bancorp

Very weak diversification

The 3 months correlation between GM and Hanover is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Hanover Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Bancorp 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 Hanover Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanover Bancorp has no effect on the direction of GM i.e., GM and Hanover Bancorp go up and down completely randomly.

Pair Corralation between GM and Hanover Bancorp

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Hanover Bancorp. In addition to that, GM is 1.29 times more volatile than Hanover Bancorp. It trades about -0.23 of its total potential returns per unit of risk. Hanover Bancorp is currently generating about -0.01 per unit of volatility. If you would invest  2,394  in Hanover Bancorp on September 23, 2024 and sell it today you would lose (20.00) from holding Hanover Bancorp or give up 0.84% of portfolio value over 90 days.

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

General Motors  vs.  Hanover Bancorp

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.

Hanover Bancorp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hanover Bancorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Hanover Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Hanover Bancorp

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

The idea behind General Motors and Hanover Bancorp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.