Correlation Between GM and RITES

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

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

Diversification Opportunities for GM and RITES

-0.79

Correlation Coefficient

GM  RITES

Pay attention - limited upside

The 3 months correlation between GM and RITES is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and RITES Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RITES Limited 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 RITES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RITES Limited has no effect on the direction of GM i.e., GM and RITES go up and down completely randomly.

Pair Corralation between GM and RITES

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.84 times more return on investment than RITES. However, General Motors is 1.19 times less risky than RITES. It trades about 0.09 of its potential returns per unit of risk. RITES Limited is currently generating about -0.08 per unit of risk. If you would invest  4,676  in General Motors on September 14, 2024 and sell it today you would earn a total of  575.00  from holding General Motors or generate 12.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

General Motors  vs.  RITES Limited

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

RITES Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RITES Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with GM and RITES

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

The idea behind General Motors and RITES 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .