Correlation Between GM and Modern Times

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

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

Diversification Opportunities for GM and Modern Times

0.5

Correlation Coefficient

GM  Modern Times

Very weak diversification

The 3 months correlation between GM and Modern is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Modern Times Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modern Times Group 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 Modern Times. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modern Times Group has no effect on the direction of GM i.e., GM and Modern Times go up and down completely randomly.

Pair Corralation between GM and Modern Times

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Modern Times. In addition to that, GM is 1.16 times more volatile than Modern Times Group. It trades about -0.01 of its total potential returns per unit of risk. Modern Times Group is currently generating about 0.24 per unit of volatility. If you would invest  7,750  in Modern Times Group on September 23, 2024 and sell it today you would earn a total of  1,700  from holding Modern Times Group or generate 21.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.73%
Values	Daily Returns

General Motors  vs.  Modern Times Group

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Modern Times Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Modern Times Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Modern Times unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Modern Times

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

The idea behind General Motors and Modern Times Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.