Correlation Between GM and Arkadia Digital

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

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

Diversification Opportunities for GM and Arkadia Digital

-0.5

Correlation Coefficient

GM  Arkadia Digital

Very good diversification

The 3 months correlation between GM and Arkadia is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Arkadia Digital Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkadia Digital Media 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 Arkadia Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkadia Digital Media has no effect on the direction of GM i.e., GM and Arkadia Digital go up and down completely randomly.

Pair Corralation between GM and Arkadia Digital

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.28 times more return on investment than Arkadia Digital. However, General Motors is 3.58 times less risky than Arkadia Digital. It trades about 0.11 of its potential returns per unit of risk. Arkadia Digital Media is currently generating about -0.26 per unit of risk. If you would invest  4,394  in General Motors on February 10, 2024 and sell it today you would earn a total of  142.00  from holding General Motors or generate 3.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	77.27%
Values	Daily Returns

General Motors  vs.  Arkadia Digital Media

General Motors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 13 (%) 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.

Arkadia Digital Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkadia Digital Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with GM and Arkadia Digital

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

The idea behind General Motors and Arkadia Digital Media 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.