Correlation Between Under Armour and GM

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

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

Diversification Opportunities for Under Armour and GM

0.61

Correlation Coefficient

Under Armour  GM

Poor diversification

The 3 months correlation between Under and GM is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Under Armour C and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Under Armour 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 Under Armour C 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 Under Armour i.e., Under Armour and GM go up and down completely randomly.

Pair Corralation between Under Armour and GM

Allowing for the 90-day total investment horizon Under Armour is expected to generate 1.01 times less return on investment than GM. In addition to that, Under Armour is 1.68 times more volatile than General Motors. It trades about 0.06 of its total potential returns per unit of risk. General Motors is currently generating about 0.1 per unit of volatility. If you would invest  4,829  in General Motors on September 1, 2024 and sell it today you would earn a total of  730.00  from holding General Motors or generate 15.12% return on investment over 90 days.

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

Under Armour C  vs.  General Motors

Under Armour C

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Under Armour C are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Under Armour sustained solid returns over the last few months and may actually be approaching a breakup point.

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Under Armour and GM

The main advantage of trading using opposite Under Armour and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Under Armour 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 Under Armour C 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.