Correlation Between Standard and Gentherm

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

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

Diversification Opportunities for Standard and Gentherm

0.65

Correlation Coefficient

Standard  Gentherm

Poor diversification

The 3 months correlation between Standard and Gentherm is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Gentherm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gentherm and Standard 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 Standard Motor Products are associated (or correlated) with Gentherm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gentherm has no effect on the direction of Standard i.e., Standard and Gentherm go up and down completely randomly.

Pair Corralation between Standard and Gentherm

Considering the 90-day investment horizon Standard Motor Products is expected to generate 0.56 times more return on investment than Gentherm. However, Standard Motor Products is 1.78 times less risky than Gentherm. It trades about -0.16 of its potential returns per unit of risk. Gentherm is currently generating about -0.35 per unit of risk. If you would invest  3,158  in Standard Motor Products on November 28, 2024 and sell it today you would lose (149.50) from holding Standard Motor Products or give up 4.73% of portfolio value over 90 days.

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

Standard Motor Products  vs.  Gentherm

Standard Motor Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Gentherm

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gentherm 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 basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Standard and Gentherm

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

The idea behind Standard Motor Products and Gentherm 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.