Correlation Between GM Breweries and COSMO FIRST

Can any of the company-specific risk be diversified away by investing in both GM Breweries and COSMO FIRST 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 COSMO FIRST 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 COSMO FIRST LIMITED, you can compare the effects of market volatilities on GM Breweries and COSMO FIRST 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 COSMO FIRST. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM Breweries and COSMO FIRST.

Diversification Opportunities for GM Breweries and COSMO FIRST

0.22

Correlation Coefficient

GM Breweries  COSMO FIRST

Modest diversification

The 3 months correlation between GMBREW and COSMO is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and COSMO FIRST LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSMO FIRST LIMITED 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 COSMO FIRST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSMO FIRST LIMITED has no effect on the direction of GM Breweries i.e., GM Breweries and COSMO FIRST go up and down completely randomly.

Pair Corralation between GM Breweries and COSMO FIRST

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 1.39 times more return on investment than COSMO FIRST. However, GM Breweries is 1.39 times more volatile than COSMO FIRST LIMITED. It trades about 0.05 of its potential returns per unit of risk. COSMO FIRST LIMITED is currently generating about 0.04 per unit of risk. If you would invest  47,155  in GM Breweries Limited on October 5, 2024 and sell it today you would earn a total of  36,140  from holding GM Breweries Limited or generate 76.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

GM Breweries Limited  vs.  COSMO FIRST LIMITED

GM Breweries Limited

Risk-Adjusted Performance

2 of 100

Weak

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

COSMO FIRST LIMITED

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COSMO FIRST LIMITED are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, COSMO FIRST demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM Breweries and COSMO FIRST

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

The idea behind GM Breweries Limited and COSMO FIRST 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.