Correlation Between GM and Phoenix

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

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

Diversification Opportunities for GM and Phoenix

-0.15

Correlation Coefficient

GM  Phoenix

Good diversification

The 3 months correlation between GM and Phoenix is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Phoenix Motor Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phoenix Motor Common 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 Phoenix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phoenix Motor Common has no effect on the direction of GM i.e., GM and Phoenix go up and down completely randomly.

Pair Corralation between GM and Phoenix

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Phoenix. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 6.05 times less risky than Phoenix. The stock trades about -0.01 of its potential returns per unit of risk. The Phoenix Motor Common is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Phoenix Motor Common on December 26, 2024 and sell it today you would earn a total of  22.00  from holding Phoenix Motor Common or generate 75.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Phoenix Motor Common

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Phoenix Motor Common

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Phoenix Motor Common are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Phoenix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Phoenix

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

The idea behind General Motors and Phoenix Motor Common 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.