Correlation Between GM and Kuraray

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

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

Diversification Opportunities for GM and Kuraray

-0.65

Correlation Coefficient

GM  Kuraray

Excellent diversification

The 3 months correlation between GM and Kuraray is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kuraray Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuraray 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 Kuraray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuraray has no effect on the direction of GM i.e., GM and Kuraray go up and down completely randomly.

Pair Corralation between GM and Kuraray

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.85 times more return on investment than Kuraray. However, General Motors is 1.18 times less risky than Kuraray. It trades about 0.11 of its potential returns per unit of risk. Kuraray Co is currently generating about 0.04 per unit of risk. If you would invest  3,324  in General Motors on September 2, 2024 and sell it today you would earn a total of  2,235  from holding General Motors or generate 67.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Kuraray Co

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.

Kuraray

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind General Motors and Kuraray Co 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.