Correlation Between Polaris Industries and GM

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

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

Diversification Opportunities for Polaris Industries and GM

0.1

Correlation Coefficient

Polaris Industries  GM

Average diversification

The 3 months correlation between Polaris and GM is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Polaris Industries and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Polaris Industries 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 Polaris Industries are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Polaris Industries i.e., Polaris Industries and GM go up and down completely randomly.

Pair Corralation between Polaris Industries and GM

Considering the 90-day investment horizon Polaris Industries is expected to under-perform the GM. In addition to that, Polaris Industries is 1.1 times more volatile than General Motors. It trades about -0.37 of its total potential returns per unit of risk. General Motors is currently generating about -0.02 per unit of volatility. If you would invest  4,517  in General Motors on February 3, 2024 and sell it today you would lose (50.00) from holding General Motors or give up 1.11% of portfolio value over 90 days.

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

Polaris Industries  vs.  General Motors

Polaris Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Polaris Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Polaris Industries is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 unsteady primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Polaris Industries and GM

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

The idea behind Polaris Industries and General Motors 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.