Correlation Between GM and ALVGR

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

By analyzing existing cross correlation between General Motors and ALVGR 35, you can compare the effects of market volatilities on GM and ALVGR 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 ALVGR. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and ALVGR.

Diversification Opportunities for GM and ALVGR

0.54

Correlation Coefficient

GM  ALVGR

Very weak diversification

The 3 months correlation between GM and ALVGR is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ALVGR 35 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALVGR 35 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 ALVGR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALVGR 35 has no effect on the direction of GM i.e., GM and ALVGR go up and down completely randomly.

Pair Corralation between GM and ALVGR

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the ALVGR. In addition to that, GM is 5.57 times more volatile than ALVGR 35. It trades about -0.07 of its total potential returns per unit of risk. ALVGR 35 is currently generating about 0.19 per unit of volatility. If you would invest  9,606  in ALVGR 35 on December 2, 2024 and sell it today you would earn a total of  164.00  from holding ALVGR 35 or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	37.7%
Values	Daily Returns

General Motors  vs.  ALVGR 35

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

ALVGR 35

Risk-Adjusted Performance

Good

Over the last 90 days ALVGR 35 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALVGR 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 ALVGR

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

The idea behind General Motors and ALVGR 35 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.