Correlation Between GM and Sony

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

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

Diversification Opportunities for GM and Sony

-0.46

Correlation Coefficient

GM  Sony

Very good diversification

The 3 months correlation between GM and Sony is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Sony Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Group 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 Sony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Group has no effect on the direction of GM i.e., GM and Sony go up and down completely randomly.

Pair Corralation between GM and Sony

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Sony. In addition to that, GM is 1.55 times more volatile than Sony Group. It trades about -0.03 of its total potential returns per unit of risk. Sony Group is currently generating about 0.16 per unit of volatility. If you would invest  43,600  in Sony Group on December 27, 2024 and sell it today you would earn a total of  6,900  from holding Sony Group or generate 15.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Sony Group

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Sony Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Sony displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Sony

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

The idea behind General Motors and Sony Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.