Correlation Between GM and Indo Rama

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

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

Diversification Opportunities for GM and Indo Rama

-0.82

Correlation Coefficient

GM  Indo Rama

Pay attention - limited upside

The 3 months correlation between GM and Indo is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Indo Rama Synthetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Rama Synthetics 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 Indo Rama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Rama Synthetics has no effect on the direction of GM i.e., GM and Indo Rama go up and down completely randomly.

Pair Corralation between GM and Indo Rama

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.69 times more return on investment than Indo Rama. However, General Motors is 1.45 times less risky than Indo Rama. It trades about -0.03 of its potential returns per unit of risk. Indo Rama Synthetics is currently generating about -0.12 per unit of risk. If you would invest  5,492  in General Motors on October 1, 2024 and sell it today you would lose (64.00) from holding General Motors or give up 1.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Indo Rama Synthetics

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

Indo Rama Synthetics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Rama Synthetics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with GM and Indo Rama

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

The idea behind General Motors and Indo Rama Synthetics 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.