Correlation Between GM and Southcorp Capital

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

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

Diversification Opportunities for GM and Southcorp Capital

0.26

Correlation Coefficient

GM  Southcorp Capital

Modest diversification

The 3 months correlation between GM and Southcorp is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Southcorp Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southcorp Capital 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 Southcorp Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southcorp Capital has no effect on the direction of GM i.e., GM and Southcorp Capital go up and down completely randomly.

Pair Corralation between GM and Southcorp Capital

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Southcorp Capital. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 97.74 times less risky than Southcorp Capital. The stock trades about -0.03 of its potential returns per unit of risk. The Southcorp Capital is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  0.28  in Southcorp Capital on December 27, 2024 and sell it today you would lose (0.27) from holding Southcorp Capital or give up 96.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Southcorp Capital

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.

Southcorp Capital

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southcorp Capital are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Southcorp Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Southcorp Capital

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

The idea behind General Motors and Southcorp Capital 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.