Correlation Between GM and Cabana Target

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

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

Diversification Opportunities for GM and Cabana Target

0.56

Correlation Coefficient

GM  Cabana Target

Very weak diversification

The 3 months correlation between GM and Cabana is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Cabana Target Drawdown in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabana Target Drawdown 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 Cabana Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabana Target Drawdown has no effect on the direction of GM i.e., GM and Cabana Target go up and down completely randomly.

Pair Corralation between GM and Cabana Target

Allowing for the 90-day total investment horizon General Motors is expected to generate 5.0 times more return on investment than Cabana Target. However, GM is 5.0 times more volatile than Cabana Target Drawdown. It trades about 0.09 of its potential returns per unit of risk. Cabana Target Drawdown is currently generating about 0.16 per unit of risk. If you would invest  4,829  in General Motors on September 3, 2024 and sell it today you would earn a total of  675.00  from holding General Motors or generate 13.98% return on investment over 90 days.

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

General Motors  vs.  Cabana Target Drawdown

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Cabana Target Drawdown

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cabana Target Drawdown are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Cabana Target is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and Cabana Target

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

The idea behind General Motors and Cabana Target Drawdown 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.