Correlation Between GM and Evolution Mining

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

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

Diversification Opportunities for GM and Evolution Mining

-0.63

Correlation Coefficient

GM  Evolution Mining

Excellent diversification

The 3 months correlation between GM and Evolution is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Evolution Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Mining 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 Evolution Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Mining has no effect on the direction of GM i.e., GM and Evolution Mining go up and down completely randomly.

Pair Corralation between GM and Evolution Mining

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Evolution Mining. In addition to that, GM is 1.08 times more volatile than Evolution Mining Limited. It trades about -0.06 of its total potential returns per unit of risk. Evolution Mining Limited is currently generating about 0.24 per unit of volatility. If you would invest  284.00  in Evolution Mining Limited on December 28, 2024 and sell it today you would earn a total of  123.00  from holding Evolution Mining Limited or generate 43.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

General Motors  vs.  Evolution Mining Limited

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.

Evolution Mining

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Mining Limited are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Evolution Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Evolution Mining

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

The idea behind General Motors and Evolution Mining Limited 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.