Correlation Between GM Breweries and SIL Investments

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

Diversification Opportunities for GM Breweries and SIL Investments

-0.27

Correlation Coefficient

GM Breweries  SIL Investments

Very good diversification

The 3 months correlation between GMBREW and SIL is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and SIL Investments Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIL Investments 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 SIL Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIL Investments has no effect on the direction of GM Breweries i.e., GM Breweries and SIL Investments go up and down completely randomly.

Pair Corralation between GM Breweries and SIL Investments

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 1.2 times more return on investment than SIL Investments. However, GM Breweries is 1.2 times more volatile than SIL Investments Limited. It trades about -0.03 of its potential returns per unit of risk. SIL Investments Limited is currently generating about -0.17 per unit of risk. If you would invest  79,235  in GM Breweries Limited on October 11, 2024 and sell it today you would lose (3,130) from holding GM Breweries Limited or give up 3.95% of portfolio value over 90 days.

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

GM Breweries Limited  vs.  SIL Investments Limited

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SIL Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SIL Investments Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, SIL Investments sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM Breweries and SIL Investments

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

The idea behind GM Breweries Limited and SIL Investments 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.