Correlation Between GM and Innate Pharma

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

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

Diversification Opportunities for GM and Innate Pharma

-0.73

Correlation Coefficient

GM  Innate Pharma

Pay attention - limited upside

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

Pair Corralation between GM and Innate Pharma

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Innate Pharma. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.09 times less risky than Innate Pharma. The stock trades about -0.01 of its potential returns per unit of risk. The Innate Pharma is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  175.00  in Innate Pharma on December 1, 2024 and sell it today you would earn a total of  38.00  from holding Innate Pharma or generate 21.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Innate Pharma

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Innate Pharma

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innate Pharma are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Innate Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Innate Pharma

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

The idea behind General Motors and Innate Pharma 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.