Correlation Between GM and Otis Worldwide

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

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

Diversification Opportunities for GM and Otis Worldwide

0.61

Correlation Coefficient

GM  Otis Worldwide

Poor diversification

The 3 months correlation between GM and Otis is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Otis Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide 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 Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide has no effect on the direction of GM i.e., GM and Otis Worldwide go up and down completely randomly.

Pair Corralation between GM and Otis Worldwide

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.85 times more return on investment than Otis Worldwide. However, GM is 1.85 times more volatile than Otis Worldwide. It trades about 0.09 of its potential returns per unit of risk. Otis Worldwide is currently generating about 0.17 per unit of risk. If you would invest  4,620  in General Motors on September 13, 2024 and sell it today you would earn a total of  610.00  from holding General Motors or generate 13.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

General Motors  vs.  Otis Worldwide

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.

Otis Worldwide

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Otis Worldwide are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Otis Worldwide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Otis Worldwide

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

The idea behind General Motors and Otis Worldwide 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.