Correlation Between GM and Reliance Capital

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

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

Diversification Opportunities for GM and Reliance Capital

0.0

Correlation Coefficient

GM  Reliance Capital

Pay attention - limited upside

The 3 months correlation between GM and Reliance is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Reliance Capital Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Capital 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 Reliance Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Capital has no effect on the direction of GM i.e., GM and Reliance Capital go up and down completely randomly.

Pair Corralation between GM and Reliance Capital

If you would invest  4,591  in General Motors on October 8, 2024 and sell it today you would earn a total of  586.00  from holding General Motors or generate 12.76% return on investment over 90 days.

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

General Motors  vs.  Reliance Capital Limited

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.

Reliance Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Capital Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Reliance Capital is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with GM and Reliance Capital

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

The idea behind General Motors and Reliance Capital Limited 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.