Correlation Between GM and SoftBrands

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

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

Diversification Opportunities for GM and SoftBrands

0.0

Correlation Coefficient

GM  SoftBrands

Pay attention - limited upside

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

Pair Corralation between GM and SoftBrands

If you would invest  4,619  in General Motors on September 23, 2024 and sell it today you would earn a total of  562.00  from holding General Motors or generate 12.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

General Motors  vs.  SoftBrands

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.

SoftBrands

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with GM and SoftBrands

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

The idea behind General Motors and SoftBrands 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.