Correlation Between GM and United Spirits

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

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

Diversification Opportunities for GM and United Spirits

0.73

Correlation Coefficient

GM  United Spirits

Poor diversification

The 3 months correlation between GM and United is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and United Spirits Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Spirits 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 United Spirits. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Spirits has no effect on the direction of GM i.e., GM and United Spirits go up and down completely randomly.

Pair Corralation between GM and United Spirits

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.25 times more return on investment than United Spirits. However, GM is 1.25 times more volatile than United Spirits Limited. It trades about -0.02 of its potential returns per unit of risk. United Spirits Limited is currently generating about -0.08 per unit of risk. If you would invest  5,243  in General Motors on December 23, 2024 and sell it today you would lose (263.00) from holding General Motors or give up 5.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

General Motors  vs.  United Spirits Limited

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.

United Spirits

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Spirits Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with GM and United Spirits

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

The idea behind General Motors and United Spirits Limited 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.