Correlation Between GM and Swiss Life

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

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

Diversification Opportunities for GM and Swiss Life

-0.67

Correlation Coefficient

GM  Swiss Life

Excellent diversification

The 3 months correlation between GM and Swiss is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Swiss Life Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swiss Life Holding 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 Swiss Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swiss Life Holding has no effect on the direction of GM i.e., GM and Swiss Life go up and down completely randomly.

Pair Corralation between GM and Swiss Life

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Swiss Life. In addition to that, GM is 1.51 times more volatile than Swiss Life Holding. It trades about -0.02 of its total potential returns per unit of risk. Swiss Life Holding is currently generating about 0.14 per unit of volatility. If you would invest  3,901  in Swiss Life Holding on December 23, 2024 and sell it today you would earn a total of  563.00  from holding Swiss Life Holding or generate 14.43% return on investment over 90 days.

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

General Motors  vs.  Swiss Life Holding

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.

Swiss Life Holding

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Swiss Life Holding are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Swiss Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Swiss Life

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

The idea behind General Motors and Swiss Life Holding 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.