Correlation Between GM and PROVIDENCE

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

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

Diversification Opportunities for GM and PROVIDENCE

-0.29

Correlation Coefficient

GM  PROVIDENCE

Very good diversification

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

Pair Corralation between GM and PROVIDENCE

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the PROVIDENCE. In addition to that, GM is 1.07 times more volatile than PROVIDENCE HEALTH SVCS. It trades about -0.03 of its total potential returns per unit of risk. PROVIDENCE HEALTH SVCS is currently generating about 0.03 per unit of volatility. If you would invest  7,851  in PROVIDENCE HEALTH SVCS on October 22, 2024 and sell it today you would earn a total of  59.00  from holding PROVIDENCE HEALTH SVCS or generate 0.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	24.19%
Values	Daily Returns

General Motors  vs.  PROVIDENCE HEALTH SVCS

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.

PROVIDENCE HEALTH SVCS

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PROVIDENCE HEALTH SVCS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, PROVIDENCE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and PROVIDENCE

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

The idea behind General Motors and PROVIDENCE HEALTH SVCS 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.