Correlation Between GM and Industrivarden

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

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

Diversification Opportunities for GM and Industrivarden

-0.28

Correlation Coefficient

GM  Industrivarden

Very good diversification

The 3 months correlation between GM and Industrivarden is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Industrivarden AB ser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrivarden AB ser 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 Industrivarden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrivarden AB ser has no effect on the direction of GM i.e., GM and Industrivarden go up and down completely randomly.

Pair Corralation between GM and Industrivarden

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.54 times more return on investment than Industrivarden. However, GM is 2.54 times more volatile than Industrivarden AB ser. It trades about 0.1 of its potential returns per unit of risk. Industrivarden AB ser is currently generating about -0.04 per unit of risk. If you would invest  4,829  in General Motors on September 2, 2024 and sell it today you would earn a total of  730.00  from holding General Motors or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.97%
Values	Daily Returns

General Motors  vs.  Industrivarden AB ser

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Industrivarden AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industrivarden AB ser has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Industrivarden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Industrivarden

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

The idea behind General Motors and Industrivarden AB ser 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.