Correlation Between GM and Plum Acquisition

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

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

Diversification Opportunities for GM and Plum Acquisition

-0.29

Correlation Coefficient

GM  Plum Acquisition

Very good diversification

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

Pair Corralation between GM and Plum Acquisition

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.86 times more return on investment than Plum Acquisition. However, General Motors is 1.17 times less risky than Plum Acquisition. It trades about 0.05 of its potential returns per unit of risk. Plum Acquisition I is currently generating about 0.01 per unit of risk. If you would invest  3,297  in General Motors on September 19, 2024 and sell it today you would earn a total of  1,702  from holding General Motors or generate 51.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.9%
Values	Daily Returns

General Motors  vs.  Plum Acquisition I

General Motors

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Plum Acquisition I

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Plum Acquisition I has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Plum Acquisition is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Plum Acquisition

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

The idea behind General Motors and Plum Acquisition I 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.