Correlation Between GM and Kansas Tax

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

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

Diversification Opportunities for GM and Kansas Tax

-0.38

Correlation Coefficient

GM  Kansas Tax

Very good diversification

The 3 months correlation between GM and Kansas is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Kansas Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kansas Tax 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 Kansas Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kansas Tax has no effect on the direction of GM i.e., GM and Kansas Tax go up and down completely randomly.

Pair Corralation between GM and Kansas Tax

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Kansas Tax. In addition to that, GM is 6.54 times more volatile than The Kansas Tax Free. It trades about -0.07 of its total potential returns per unit of risk. The Kansas Tax Free is currently generating about -0.24 per unit of volatility. If you would invest  1,840  in The Kansas Tax Free on September 27, 2024 and sell it today you would lose (19.00) from holding The Kansas Tax Free or give up 1.03% of portfolio value over 90 days.

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

General Motors  vs.  The Kansas Tax Free

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 8 (%) 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.

Kansas Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Kansas Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Kansas Tax 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 Kansas Tax

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

The idea behind General Motors and The Kansas Tax Free 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.