Correlation Between GM and ALLSTATE

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

By analyzing existing cross correlation between General Motors and ALLSTATE P 42, you can compare the effects of market volatilities on GM and ALLSTATE 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 ALLSTATE. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and ALLSTATE.

Diversification Opportunities for GM and ALLSTATE

-0.29

Correlation Coefficient

GM  ALLSTATE

Very good diversification

The 3 months correlation between GM and ALLSTATE is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ALLSTATE P 42 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLSTATE P 42 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 ALLSTATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLSTATE P 42 has no effect on the direction of GM i.e., GM and ALLSTATE go up and down completely randomly.

Pair Corralation between GM and ALLSTATE

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.34 times more return on investment than ALLSTATE. However, General Motors is 2.97 times less risky than ALLSTATE. It trades about -0.08 of its potential returns per unit of risk. ALLSTATE P 42 is currently generating about -0.03 per unit of risk. If you would invest  5,256  in General Motors on October 22, 2024 and sell it today you would lose (159.00) from holding General Motors or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	72.22%
Values	Daily Returns

General Motors  vs.  ALLSTATE P 42

General Motors

Risk-Adjusted Performance

0 of 100

Insignificant

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.

ALLSTATE P 42

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days ALLSTATE P 42 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for ALLSTATE P 42 investors.

Pair Trading with GM and ALLSTATE

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

The idea behind General Motors and ALLSTATE P 42 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.