Correlation Between GENERAL and Reservoir Media

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

By analyzing existing cross correlation between GENERAL ELEC CAP and Reservoir Media, you can compare the effects of market volatilities on GENERAL and Reservoir Media 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 GENERAL with a short position of Reservoir Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of GENERAL and Reservoir Media.

Diversification Opportunities for GENERAL and Reservoir Media

0.16

Correlation Coefficient

GENERAL  Reservoir Media

Average diversification

The 3 months correlation between GENERAL and Reservoir is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and Reservoir Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reservoir Media and GENERAL 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 GENERAL ELEC CAP are associated (or correlated) with Reservoir Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reservoir Media has no effect on the direction of GENERAL i.e., GENERAL and Reservoir Media go up and down completely randomly.

Pair Corralation between GENERAL and Reservoir Media

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to generate 0.54 times more return on investment than Reservoir Media. However, GENERAL ELEC CAP is 1.87 times less risky than Reservoir Media. It trades about -0.17 of its potential returns per unit of risk. Reservoir Media is currently generating about -0.11 per unit of risk. If you would invest  8,997  in GENERAL ELEC CAP on October 11, 2024 and sell it today you would lose (432.00) from holding GENERAL ELEC CAP or give up 4.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	51.22%
Values	Daily Returns

GENERAL ELEC CAP  vs.  Reservoir Media

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for GENERAL ELEC CAP investors.

Reservoir Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reservoir Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Reservoir Media is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GENERAL and Reservoir Media

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

The idea behind GENERAL ELEC CAP and Reservoir Media 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.