Correlation Between GM and CARDINAL

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

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

Diversification Opportunities for GM and CARDINAL

-0.56

Correlation Coefficient

GM  CARDINAL

Excellent diversification

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

Pair Corralation between GM and CARDINAL

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.92 times more return on investment than CARDINAL. However, General Motors is 1.09 times less risky than CARDINAL. It trades about 0.1 of its potential returns per unit of risk. CARDINAL HEALTH INC is currently generating about -0.07 per unit of risk. If you would invest  4,620  in General Motors on September 13, 2024 and sell it today you would earn a total of  654.00  from holding General Motors or generate 14.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	69.84%
Values	Daily Returns

General Motors  vs.  CARDINAL HEALTH INC

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.

CARDINAL HEALTH INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARDINAL HEALTH INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 CARDINAL HEALTH INC investors.

Pair Trading with GM and CARDINAL

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

The idea behind General Motors and CARDINAL HEALTH INC 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.