Correlation Between GM and CAFCA

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Can any of the company-specific risk be diversified away by investing in both GM and CAFCA 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 CAFCA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CAFCA LIMITED, you can compare the effects of market volatilities on GM and CAFCA 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 CAFCA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CAFCA.

Diversification Opportunities for GM and CAFCA

0.38
  Correlation Coefficient
 GM

Weak diversification

The 3 months correlation between GM and CAFCA is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CAFCA LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAFCA LIMITED 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 CAFCA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAFCA LIMITED has no effect on the direction of GM i.e., GM and CAFCA go up and down completely randomly.

Pair Corralation between GM and CAFCA

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the CAFCA. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.05 times less risky than CAFCA. The stock trades about -0.22 of its potential returns per unit of risk. The CAFCA LIMITED is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  203,965  in CAFCA LIMITED on November 28, 2024 and sell it today you would lose (23,965) from holding CAFCA LIMITED or give up 11.75% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  CAFCA LIMITED

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
CAFCA LIMITED 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days CAFCA LIMITED has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

GM and CAFCA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and CAFCA

The main advantage of trading using opposite GM and CAFCA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CAFCA 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 CAFCA will offset losses from the drop in CAFCA's long position.
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The idea behind General Motors and CAFCA LIMITED 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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Check out your portfolio center.
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.

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