Correlation Between GM and Evergreen Warrant

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

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

Diversification Opportunities for GM and Evergreen Warrant

-0.3

Correlation Coefficient

GM  Evergreen Warrant

Very good diversification

The 3 months correlation between GM and Evergreen is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Evergreen Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evergreen Warrant 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 Evergreen Warrant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evergreen Warrant has no effect on the direction of GM i.e., GM and Evergreen Warrant go up and down completely randomly.

Pair Corralation between GM and Evergreen Warrant

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Evergreen Warrant. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 5.77 times less risky than Evergreen Warrant. The stock trades about -0.15 of its potential returns per unit of risk. The Evergreen Warrant is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5.01  in Evergreen Warrant on September 15, 2024 and sell it today you would earn a total of  0.99  from holding Evergreen Warrant or generate 19.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.57%
Values	Daily Returns

General Motors  vs.  Evergreen Warrant

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Evergreen Warrant

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Evergreen Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal basic indicators, Evergreen Warrant showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Evergreen Warrant

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

The idea behind General Motors and Evergreen Warrant 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.