Correlation Between GM and Yelp

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

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

Diversification Opportunities for GM and Yelp

-0.51

Correlation Coefficient

GM  Yelp

Excellent diversification

The 3 months correlation between GM and Yelp is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Yelp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yelp Inc 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 Yelp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yelp Inc has no effect on the direction of GM i.e., GM and Yelp go up and down completely randomly.

Pair Corralation between GM and Yelp

Allowing for the 90-day total investment horizon GM is expected to generate 1.47 times less return on investment than Yelp. But when comparing it to its historical volatility, General Motors is 1.04 times less risky than Yelp. It trades about 0.02 of its potential returns per unit of risk. Yelp Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,084  in Yelp Inc on January 26, 2024 and sell it today you would earn a total of  955.00  from holding Yelp Inc or generate 30.97% return on investment over 90 days.

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

General Motors  vs.  Yelp Inc

General Motors

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 18 (%) 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.

Yelp Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yelp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with GM and Yelp

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

The idea behind General Motors and Yelp Inc 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 Valuation module to check real value of public entities based on technical and fundamental data.