Correlation Between GM and Marcopolo

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

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

Diversification Opportunities for GM and Marcopolo

0.81

Correlation Coefficient

GM  Marcopolo

Very poor diversification

The 3 months correlation between GM and Marcopolo is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Marcopolo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marcopolo SA 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 Marcopolo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marcopolo SA has no effect on the direction of GM i.e., GM and Marcopolo go up and down completely randomly.

Pair Corralation between GM and Marcopolo

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.24 times more return on investment than Marcopolo. However, GM is 1.24 times more volatile than Marcopolo SA. It trades about 0.09 of its potential returns per unit of risk. Marcopolo SA is currently generating about 0.07 per unit of risk. If you would invest  4,829  in General Motors on September 3, 2024 and sell it today you would earn a total of  675.00  from holding General Motors or generate 13.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Marcopolo SA

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.

Marcopolo SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Marcopolo SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Marcopolo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Marcopolo

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

The idea behind General Motors and Marcopolo SA 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .