Correlation Between GM and Data Storage

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

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

Diversification Opportunities for GM and Data Storage

0.53

Correlation Coefficient

GM  Data Storage

Very weak diversification

The 3 months correlation between GM and Data is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Data Storage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Storage Corp 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 Data Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Storage Corp has no effect on the direction of GM i.e., GM and Data Storage go up and down completely randomly.

Pair Corralation between GM and Data Storage

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.34 times more return on investment than Data Storage. However, General Motors is 2.95 times less risky than Data Storage. It trades about 0.05 of its potential returns per unit of risk. Data Storage Corp is currently generating about -0.13 per unit of risk. If you would invest  4,423  in General Motors on February 5, 2024 and sell it today you would earn a total of  63.00  from holding General Motors or generate 1.42% return on investment over 90 days.

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

General Motors  vs.  Data Storage Corp

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

Data Storage Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Data Storage Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Data Storage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Data Storage

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

The idea behind General Motors and Data Storage Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.