Correlation Between GM and Douglas Dynamics

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

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

Diversification Opportunities for GM and Douglas Dynamics

-0.5

Correlation Coefficient

GM  Douglas Dynamics

Very good diversification

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

Pair Corralation between GM and Douglas Dynamics

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Douglas Dynamics. In addition to that, GM is 1.55 times more volatile than Douglas Dynamics. It trades about -0.03 of its total potential returns per unit of risk. Douglas Dynamics is currently generating about 0.04 per unit of volatility. If you would invest  2,304  in Douglas Dynamics on December 27, 2024 and sell it today you would earn a total of  69.00  from holding Douglas Dynamics or generate 2.99% return on investment over 90 days.

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

General Motors  vs.  Douglas Dynamics

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.

Douglas Dynamics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Dynamics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with GM and Douglas Dynamics

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

The idea behind General Motors and Douglas Dynamics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.