Correlation Between GM and Automatic Bank

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

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

Diversification Opportunities for GM and Automatic Bank

-0.51

Correlation Coefficient

GM  Automatic Bank

Excellent diversification

The 3 months correlation between GM and Automatic is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Automatic Bank Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Bank Services 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 Automatic Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Bank Services has no effect on the direction of GM i.e., GM and Automatic Bank go up and down completely randomly.

Pair Corralation between GM and Automatic Bank

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Automatic Bank. In addition to that, GM is 1.11 times more volatile than Automatic Bank Services. It trades about -0.07 of its total potential returns per unit of risk. Automatic Bank Services is currently generating about 0.13 per unit of volatility. If you would invest  234,200  in Automatic Bank Services on December 28, 2024 and sell it today you would earn a total of  36,600  from holding Automatic Bank Services or generate 15.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	83.61%
Values	Daily Returns

General Motors  vs.  Automatic Bank Services

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Automatic Bank Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Bank Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Automatic Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Automatic Bank

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

The idea behind General Motors and Automatic Bank Services 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.