Correlation Between GM and Rite Aid

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

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

Diversification Opportunities for GM and Rite Aid

0.0

Correlation Coefficient

GM  Rite Aid

Pay attention - limited upside

The 3 months correlation between GM and Rite is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Rite Aid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rite Aid 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 Rite Aid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rite Aid has no effect on the direction of GM i.e., GM and Rite Aid go up and down completely randomly.

Pair Corralation between GM and Rite Aid

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.29 times more return on investment than Rite Aid. However, General Motors is 3.44 times less risky than Rite Aid. It trades about 0.05 of its potential returns per unit of risk. Rite Aid is currently generating about -0.04 per unit of risk. If you would invest  3,447  in General Motors on September 10, 2024 and sell it today you would earn a total of  1,824  from holding General Motors or generate 52.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

General Motors  vs.  Rite Aid

General Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 9 (%) 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.

Rite Aid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rite Aid has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rite Aid is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Rite Aid

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

The idea behind General Motors and Rite Aid 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.