Correlation Between GM and Great Eastern

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Can any of the company-specific risk be diversified away by investing in both GM and Great Eastern 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 Great Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Great Eastern Holdings, you can compare the effects of market volatilities on GM and Great Eastern 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 Great Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Great Eastern.

Diversification Opportunities for GM and Great Eastern

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between GM and Great is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Great Eastern Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Eastern Holdings 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 Great Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Eastern Holdings has no effect on the direction of GM i.e., GM and Great Eastern go up and down completely randomly.

Pair Corralation between GM and Great Eastern

If you would invest  4,107  in General Motors on August 2, 2024 and sell it today you would earn a total of  1,090  from holding General Motors or generate 26.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy0.0%
ValuesDaily Returns

General Motors  vs.  Great Eastern Holdings

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 14 (%) 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.
Great Eastern Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Great Eastern Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Great Eastern is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

GM and Great Eastern Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Great Eastern

The main advantage of trading using opposite GM and Great Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Great Eastern 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 Great Eastern will offset losses from the drop in Great Eastern's long position.
The idea behind General Motors and Great Eastern Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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