Correlation Between GM and Travis Perkins

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

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

Diversification Opportunities for GM and Travis Perkins

0.45

Correlation Coefficient

GM  Travis Perkins

Very weak diversification

The 3 months correlation between GM and Travis is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Travis Perkins PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Travis Perkins PLC and GM 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 Motors are associated (or correlated) with Travis Perkins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Travis Perkins PLC has no effect on the direction of GM i.e., GM and Travis Perkins go up and down completely randomly.

Pair Corralation between GM and Travis Perkins

Allowing for the 90-day total investment horizon GM is expected to generate 1.26 times less return on investment than Travis Perkins. In addition to that, GM is 1.16 times more volatile than Travis Perkins PLC. It trades about 0.21 of its total potential returns per unit of risk. Travis Perkins PLC is currently generating about 0.3 per unit of volatility. If you would invest  992.00  in Travis Perkins PLC on March 13, 2024 and sell it today you would earn a total of  90.00  from holding Travis Perkins PLC or generate 9.07% return on investment over 90 days.

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

General Motors  vs.  Travis Perkins PLC

General Motors

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 15 (%) 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.

Travis Perkins PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Travis Perkins PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward-looking signals, Travis Perkins showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Travis Perkins

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

The idea behind General Motors and Travis Perkins PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.