Correlation Between GM and Request Network

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

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

Diversification Opportunities for GM and Request Network

0.67

Correlation Coefficient

GM  Request Network

Poor diversification

The 3 months correlation between GM and Request is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Request Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Request Network 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 Request Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Request Network has no effect on the direction of GM i.e., GM and Request Network go up and down completely randomly.

Pair Corralation between GM and Request Network

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Request Network. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.01 times less risky than Request Network. The stock trades about -0.01 of its potential returns per unit of risk. The Request Network is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Request Network on December 25, 2024 and sell it today you would lose (1.00) from holding Request Network or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Request Network

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Request Network

Risk-Adjusted Performance

Very Weak

Over the last 90 days Request Network has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Request Network is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and Request Network

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

The idea behind General Motors and Request Network 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.