Correlation Between GM and ALPS

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

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

Diversification Opportunities for GM and ALPS

0.25

Correlation Coefficient

GM  ALPS

Modest diversification

The 3 months correlation between GM and ALPS is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS 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 ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of GM i.e., GM and ALPS go up and down completely randomly.

Pair Corralation between GM and ALPS

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.77 times more return on investment than ALPS. However, GM is 2.77 times more volatile than ALPS. It trades about 0.14 of its potential returns per unit of risk. ALPS is currently generating about 0.12 per unit of risk. If you would invest  4,474  in General Motors on September 30, 2024 and sell it today you would earn a total of  954.00  from holding General Motors or generate 21.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	26.56%
Values	Daily Returns

General Motors  vs.  ALPS

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.

ALPS

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ALPS 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 ALPS

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

The idea behind General Motors and ALPS 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.