Correlation Between GM and ALPS Sector

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

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

Diversification Opportunities for GM and ALPS Sector

0.62

Correlation Coefficient

GM  ALPS Sector

Poor diversification

The 3 months correlation between GM and ALPS is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ALPS Sector Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Sector Dividend 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 ALPS Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Sector Dividend has no effect on the direction of GM i.e., GM and ALPS Sector go up and down completely randomly.

Pair Corralation between GM and ALPS Sector

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the ALPS Sector. In addition to that, GM is 4.13 times more volatile than ALPS Sector Dividend. It trades about -0.16 of its total potential returns per unit of risk. ALPS Sector Dividend is currently generating about -0.21 per unit of volatility. If you would invest  5,950  in ALPS Sector Dividend on September 18, 2024 and sell it today you would lose (167.00) from holding ALPS Sector Dividend or give up 2.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  ALPS Sector Dividend

General Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) 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.

ALPS Sector Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS Sector Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALPS Sector is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and ALPS Sector

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

The idea behind General Motors and ALPS Sector Dividend 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.