Correlation Between GM and Pharmacielo

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

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

Diversification Opportunities for GM and Pharmacielo

0.29

Correlation Coefficient

GM  Pharmacielo

Modest diversification

The 3 months correlation between GM and Pharmacielo is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Pharmacielo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharmacielo 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 Pharmacielo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharmacielo has no effect on the direction of GM i.e., GM and Pharmacielo go up and down completely randomly.

Pair Corralation between GM and Pharmacielo

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.35 times more return on investment than Pharmacielo. However, General Motors is 2.85 times less risky than Pharmacielo. It trades about -0.06 of its potential returns per unit of risk. Pharmacielo is currently generating about -0.06 per unit of risk. If you would invest  5,352  in General Motors on December 28, 2024 and sell it today you would lose (632.00) from holding General Motors or give up 11.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Pharmacielo

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.

Pharmacielo

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pharmacielo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GM and Pharmacielo

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

The idea behind General Motors and Pharmacielo 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.