Correlation Between GM and Lighthouse Hotel

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

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

Diversification Opportunities for GM and Lighthouse Hotel

-0.26

Correlation Coefficient

GM  Lighthouse Hotel

Very good diversification

The 3 months correlation between GM and Lighthouse is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lighthouse Hotel PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lighthouse Hotel PLC 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 Lighthouse Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lighthouse Hotel PLC has no effect on the direction of GM i.e., GM and Lighthouse Hotel go up and down completely randomly.

Pair Corralation between GM and Lighthouse Hotel

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Lighthouse Hotel. In addition to that, GM is 1.02 times more volatile than Lighthouse Hotel PLC. It trades about -0.07 of its total potential returns per unit of risk. Lighthouse Hotel PLC is currently generating about -0.07 per unit of volatility. If you would invest  6,450  in Lighthouse Hotel PLC on December 29, 2024 and sell it today you would lose (710.00) from holding Lighthouse Hotel PLC or give up 11.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.8%
Values	Daily Returns

General Motors  vs.  Lighthouse Hotel PLC

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.

Lighthouse Hotel PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lighthouse Hotel PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with GM and Lighthouse Hotel

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

The idea behind General Motors and Lighthouse Hotel PLC 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.