Correlation Between GM and MAN

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

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

Diversification Opportunities for GM and MAN

0.71

Correlation Coefficient

GM  MAN

Poor diversification

The 3 months correlation between GM and MAN is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and MAN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAN 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 MAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAN has no effect on the direction of GM i.e., GM and MAN go up and down completely randomly.

Pair Corralation between GM and MAN

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the MAN. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 7.32 times less risky than MAN. The stock trades about -0.07 of its potential returns per unit of risk. The MAN is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2.88  in MAN on December 1, 2024 and sell it today you would lose (1.61) from holding MAN or give up 55.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.75%
Values	Daily Returns

General Motors  vs.  MAN

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.

MAN

Risk-Adjusted Performance

Very Weak

Over the last 90 days MAN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, MAN is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and MAN

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

The idea behind General Motors and MAN 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.