Correlation Between GM and Kohat Cement

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

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

Diversification Opportunities for GM and Kohat Cement

0.81

Correlation Coefficient

GM  Kohat Cement

Very poor diversification

The 3 months correlation between GM and Kohat is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kohat Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kohat Cement 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 Kohat Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kohat Cement has no effect on the direction of GM i.e., GM and Kohat Cement go up and down completely randomly.

Pair Corralation between GM and Kohat Cement

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.78 times more return on investment than Kohat Cement. However, General Motors is 1.29 times less risky than Kohat Cement. It trades about -0.06 of its potential returns per unit of risk. Kohat Cement is currently generating about -0.09 per unit of risk. If you would invest  5,527  in General Motors on October 8, 2024 and sell it today you would lose (350.00) from holding General Motors or give up 6.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.56%
Values	Daily Returns

General Motors  vs.  Kohat Cement

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 weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Kohat Cement

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kohat Cement are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Kohat Cement sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Kohat Cement

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

The idea behind General Motors and Kohat Cement 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.