Correlation Between GM and Williams Companies

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

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

Diversification Opportunities for GM and Williams Companies

0.04

Correlation Coefficient

GM  Williams Companies

Significant diversification

The 3 months correlation between GM and Williams is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Williams Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Williams Companies 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 Williams Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Williams Companies has no effect on the direction of GM i.e., GM and Williams Companies go up and down completely randomly.

Pair Corralation between GM and Williams Companies

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Williams Companies. In addition to that, GM is 1.28 times more volatile than Williams Companies. It trades about -0.03 of its total potential returns per unit of risk. Williams Companies is currently generating about 0.11 per unit of volatility. If you would invest  5,346  in Williams Companies on December 27, 2024 and sell it today you would earn a total of  649.00  from holding Williams Companies or generate 12.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Williams Companies

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 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.

Williams Companies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady primary indicators, Williams Companies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Williams Companies

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

The idea behind General Motors and Williams Companies 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .