Correlation Between GM and United Overseas

Can any of the company-specific risk be diversified away by investing in both GM and United Overseas 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 Overseas 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 Overseas Bank, you can compare the effects of market volatilities on GM and United Overseas 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 Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and United Overseas.

Diversification Opportunities for GM and United Overseas

-0.52

Correlation Coefficient

GM  United Overseas

Excellent diversification

The 3 months correlation between GM and United is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and United Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Overseas Bank 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 Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Overseas Bank has no effect on the direction of GM i.e., GM and United Overseas go up and down completely randomly.

Pair Corralation between GM and United Overseas

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the United Overseas. In addition to that, GM is 1.76 times more volatile than United Overseas Bank. It trades about -0.02 of its total potential returns per unit of risk. United Overseas Bank is currently generating about 0.03 per unit of volatility. If you would invest  2,531  in United Overseas Bank on December 23, 2024 and sell it today you would earn a total of  60.00  from holding United Overseas Bank or generate 2.37% return on investment over 90 days.

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

General Motors  vs.  United Overseas Bank

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 Overseas Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, United Overseas is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and United Overseas

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

The idea behind General Motors and United Overseas Bank 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 Stocks Directory module to find actively traded stocks across global markets.