Correlation Between Linamar and GM

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

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

Diversification Opportunities for Linamar and GM

0.66

Correlation Coefficient

Linamar  GM

Poor diversification

The 3 months correlation between Linamar and GM is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Linamar and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Linamar 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 Linamar are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Linamar i.e., Linamar and GM go up and down completely randomly.

Pair Corralation between Linamar and GM

Assuming the 90 days horizon Linamar is expected to under-perform the GM. But the pink sheet apears to be less risky and, when comparing its historical volatility, Linamar is 1.29 times less risky than GM. The pink sheet trades about -0.06 of its potential returns per unit of risk. The General Motors is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,414  in General Motors on December 27, 2024 and sell it today you would lose (319.00) from holding General Motors or give up 5.89% of portfolio value over 90 days.

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

Linamar  vs.  General Motors

Linamar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Linamar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with Linamar and GM

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

The idea behind Linamar and General Motors 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.