Correlation Between GM and Home Pottery

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

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

Diversification Opportunities for GM and Home Pottery

0.73

Correlation Coefficient

GM  Home Pottery

Poor diversification

The 3 months correlation between GM and Home is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Home Pottery Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Pottery Public 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 Home Pottery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Pottery Public has no effect on the direction of GM i.e., GM and Home Pottery go up and down completely randomly.

Pair Corralation between GM and Home Pottery

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.08 times more return on investment than Home Pottery. However, GM is 1.08 times more volatile than Home Pottery Public. It trades about -0.01 of its potential returns per unit of risk. Home Pottery Public is currently generating about -0.04 per unit of risk. If you would invest  5,404  in General Motors on December 26, 2024 and sell it today you would lose (145.00) from holding General Motors or give up 2.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  Home Pottery Public

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.

Home Pottery Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Pottery Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Home Pottery is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with GM and Home Pottery

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

The idea behind General Motors and Home Pottery Public 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 CEOs Directory module to screen CEOs from public companies around the world.