Correlation Between GM and Lipum AB

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

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

Diversification Opportunities for GM and Lipum AB

-0.72

Correlation Coefficient

GM  Lipum AB

Pay attention - limited upside

The 3 months correlation between GM and Lipum is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lipum AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lipum AB 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 Lipum AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lipum AB has no effect on the direction of GM i.e., GM and Lipum AB go up and down completely randomly.

Pair Corralation between GM and Lipum AB

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Lipum AB. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.96 times less risky than Lipum AB. The stock trades about -0.03 of its potential returns per unit of risk. The Lipum AB is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,200  in Lipum AB on December 27, 2024 and sell it today you would earn a total of  340.00  from holding Lipum AB or generate 28.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  Lipum AB

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Lipum AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lipum AB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lipum AB unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Lipum AB

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

The idea behind General Motors and Lipum AB 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.