Correlation Between GM and Prudential Commodity

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

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

Diversification Opportunities for GM and Prudential Commodity

-0.37

Correlation Coefficient

GM  Prudential Commodity

Very good diversification

The 3 months correlation between GM and Prudential is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Prudential Commodity Strategie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Commodity 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 Prudential Commodity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Commodity has no effect on the direction of GM i.e., GM and Prudential Commodity go up and down completely randomly.

Pair Corralation between GM and Prudential Commodity

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.26 times more return on investment than Prudential Commodity. However, GM is 1.26 times more volatile than Prudential Commodity Strategies. It trades about -0.07 of its potential returns per unit of risk. Prudential Commodity Strategies is currently generating about -0.19 per unit of risk. If you would invest  5,467  in General Motors on September 27, 2024 and sell it today you would lose (116.00) from holding General Motors or give up 2.12% of portfolio value over 90 days.

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

General Motors  vs.  Prudential Commodity Strategie

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 8 (%) 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.

Prudential Commodity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Commodity Strategies has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Prudential Commodity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Prudential Commodity

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

The idea behind General Motors and Prudential Commodity Strategies 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.