Correlation Between GM and American CuMo

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

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

Diversification Opportunities for GM and American CuMo

-0.32

Correlation Coefficient

GM  American CuMo

Very good diversification

The 3 months correlation between GM and American is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and American CuMo Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American CuMo Mining 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 American CuMo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American CuMo Mining has no effect on the direction of GM i.e., GM and American CuMo go up and down completely randomly.

Pair Corralation between GM and American CuMo

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the American CuMo. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 9.42 times less risky than American CuMo. The stock trades about -0.14 of its potential returns per unit of risk. The American CuMo Mining is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.00  in American CuMo Mining on September 13, 2024 and sell it today you would earn a total of  0.00  from holding American CuMo Mining or generate 0.0% return on investment over 90 days.

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

General Motors  vs.  American CuMo Mining

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.

American CuMo Mining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American CuMo Mining are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, American CuMo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and American CuMo

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

The idea behind General Motors and American CuMo Mining 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.