Correlation Between GM and Malibu Boats

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

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

Diversification Opportunities for GM and Malibu Boats

-0.6

Correlation Coefficient

GM  Malibu Boats

Excellent diversification

The 3 months correlation between GM and Malibu is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Malibu Boats in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malibu Boats 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 Malibu Boats. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malibu Boats has no effect on the direction of GM i.e., GM and Malibu Boats go up and down completely randomly.

Pair Corralation between GM and Malibu Boats

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.54 times more return on investment than Malibu Boats. However, General Motors is 1.85 times less risky than Malibu Boats. It trades about 0.09 of its potential returns per unit of risk. Malibu Boats is currently generating about -0.39 per unit of risk. If you would invest  4,368  in General Motors on February 4, 2024 and sell it today you would earn a total of  118.00  from holding General Motors or generate 2.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

General Motors  vs.  Malibu Boats

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

Malibu Boats

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Malibu Boats has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with GM and Malibu Boats

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

The idea behind General Motors and Malibu Boats 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.