Correlation Between GM Breweries and Action Construction

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

By analyzing existing cross correlation between GM Breweries Limited and Action Construction Equipment, you can compare the effects of market volatilities on GM Breweries and Action Construction 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 Breweries with a short position of Action Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM Breweries and Action Construction.

Diversification Opportunities for GM Breweries and Action Construction

0.91

Correlation Coefficient

GM Breweries  Action Construction

Almost no diversification

The 3 months correlation between GMBREW and Action is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Action Construction Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action Construction and GM Breweries 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 GM Breweries Limited are associated (or correlated) with Action Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Construction has no effect on the direction of GM Breweries i.e., GM Breweries and Action Construction go up and down completely randomly.

Pair Corralation between GM Breweries and Action Construction

Assuming the 90 days trading horizon GM Breweries Limited is expected to under-perform the Action Construction. But the stock apears to be less risky and, when comparing its historical volatility, GM Breweries Limited is 1.11 times less risky than Action Construction. The stock trades about -0.12 of its potential returns per unit of risk. The Action Construction Equipment is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  144,895  in Action Construction Equipment on December 25, 2024 and sell it today you would lose (20,605) from holding Action Construction Equipment or give up 14.22% of portfolio value over 90 days.

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

GM Breweries Limited  vs.  Action Construction Equipment

GM Breweries Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Action Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Action Construction Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with GM Breweries and Action Construction

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

The idea behind GM Breweries Limited and Action Construction Equipment 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.