Correlation Between GM and Tidewater Midstream

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

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

Diversification Opportunities for GM and Tidewater Midstream

-0.64

Correlation Coefficient

GM  Tidewater Midstream

Excellent diversification

The 3 months correlation between GM and Tidewater is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tidewater Midstream and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidewater Midstream and 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 Tidewater Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidewater Midstream and has no effect on the direction of GM i.e., GM and Tidewater Midstream go up and down completely randomly.

Pair Corralation between GM and Tidewater Midstream

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.31 times more return on investment than Tidewater Midstream. However, General Motors is 3.2 times less risky than Tidewater Midstream. It trades about 0.14 of its potential returns per unit of risk. Tidewater Midstream and is currently generating about -0.14 per unit of risk. If you would invest  4,474  in General Motors on September 30, 2024 and sell it today you would earn a total of  954.00  from holding General Motors or generate 21.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

General Motors  vs.  Tidewater Midstream and

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

Tidewater Midstream and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tidewater Midstream and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GM and Tidewater Midstream

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

The idea behind General Motors and Tidewater Midstream and 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.