Correlation Between GM and Rail Vikas

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

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

Diversification Opportunities for GM and Rail Vikas

-0.8

Correlation Coefficient

GM  Rail Vikas

Pay attention - limited upside

The 3 months correlation between GM and Rail is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Rail Vikas Nigam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rail Vikas Nigam 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 Rail Vikas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rail Vikas Nigam has no effect on the direction of GM i.e., GM and Rail Vikas go up and down completely randomly.

Pair Corralation between GM and Rail Vikas

Allowing for the 90-day total investment horizon GM is expected to generate 4.05 times less return on investment than Rail Vikas. But when comparing it to its historical volatility, General Motors is 1.8 times less risky than Rail Vikas. It trades about 0.05 of its potential returns per unit of risk. Rail Vikas Nigam is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,653  in Rail Vikas Nigam on September 23, 2024 and sell it today you would earn a total of  36,672  from holding Rail Vikas Nigam or generate 551.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

General Motors  vs.  Rail Vikas Nigam

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rail Vikas Nigam

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rail Vikas Nigam 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 comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with GM and Rail Vikas

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

The idea behind General Motors and Rail Vikas Nigam 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.

Check out your portfolio center.

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.