Correlation Between GM and Quarterhill

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

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

Diversification Opportunities for GM and Quarterhill

-0.22

Correlation Coefficient

GM  Quarterhill

Very good diversification

The 3 months correlation between GM and Quarterhill is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Quarterhill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quarterhill 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 Quarterhill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quarterhill has no effect on the direction of GM i.e., GM and Quarterhill go up and down completely randomly.

Pair Corralation between GM and Quarterhill

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.91 times more return on investment than Quarterhill. However, General Motors is 1.1 times less risky than Quarterhill. It trades about 0.08 of its potential returns per unit of risk. Quarterhill is currently generating about 0.0 per unit of risk. If you would invest  4,551  in General Motors on August 31, 2024 and sell it today you would earn a total of  1,008  from holding General Motors or generate 22.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

General Motors  vs.  Quarterhill

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.

Quarterhill

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quarterhill are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Quarterhill may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with GM and Quarterhill

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

The idea behind General Motors and Quarterhill 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.