Correlation Between GM and PTC

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

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

Diversification Opportunities for GM and PTC

0.84

Correlation Coefficient

GM  PTC

Very poor diversification

The 3 months correlation between GM and PTC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and PTC Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PTC Inc 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 PTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PTC Inc has no effect on the direction of GM i.e., GM and PTC go up and down completely randomly.

Pair Corralation between GM and PTC

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.76 times more return on investment than PTC. However, GM is 1.76 times more volatile than PTC Inc. It trades about 0.1 of its potential returns per unit of risk. PTC Inc is currently generating about 0.16 per unit of risk. If you would invest  4,829  in General Motors on August 31, 2024 and sell it today you would earn a total of  721.00  from holding General Motors or generate 14.93% return on investment over 90 days.

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

General Motors  vs.  PTC Inc

General Motors

Risk-Adjusted Performance

7 of 100

Modest

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.

PTC Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PTC Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, PTC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and PTC

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

The idea behind General Motors and PTC Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.