Correlation Between GM and Sparinvest Value

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

By analyzing existing cross correlation between General Motors and Sparinvest Value Emerging, you can compare the effects of market volatilities on GM and Sparinvest Value 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 Sparinvest Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Sparinvest Value.

Diversification Opportunities for GM and Sparinvest Value

0.85

Correlation Coefficient

GM  Sparinvest Value

Very poor diversification

The 3 months correlation between GM and Sparinvest is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Sparinvest Value Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparinvest Value Emerging 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 Sparinvest Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparinvest Value Emerging has no effect on the direction of GM i.e., GM and Sparinvest Value go up and down completely randomly.

Pair Corralation between GM and Sparinvest Value

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.09 times more return on investment than Sparinvest Value. However, GM is 1.09 times more volatile than Sparinvest Value Emerging. It trades about -0.02 of its potential returns per unit of risk. Sparinvest Value Emerging is currently generating about -0.06 per unit of risk. If you would invest  4,355  in General Motors on January 24, 2024 and sell it today you would lose (34.00) from holding General Motors or give up 0.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.0%
Values	Daily Returns

General Motors  vs.  Sparinvest Value Emerging

General Motors

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 17 (%) 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.

Sparinvest Value Emerging

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparinvest Value Emerging are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. Despite quite persistent technical and fundamental indicators, Sparinvest Value is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with GM and Sparinvest Value

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

The idea behind General Motors and Sparinvest Value Emerging 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.