Correlation Between GM and EAST AFRICAN

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

Diversification Opportunities for GM and EAST AFRICAN

0.84
  Correlation Coefficient
 GM

Very poor diversification

The 3 months correlation between GM and EAST is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and EAST AFRICAN BREWERIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAST AFRICAN BREWERIES 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 EAST AFRICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAST AFRICAN BREWERIES has no effect on the direction of GM i.e., GM and EAST AFRICAN go up and down completely randomly.

Pair Corralation between GM and EAST AFRICAN

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.12 times more return on investment than EAST AFRICAN. However, GM is 1.12 times more volatile than EAST AFRICAN BREWERIES. It trades about 0.32 of its potential returns per unit of risk. EAST AFRICAN BREWERIES is currently generating about 0.09 per unit of risk. If you would invest  5,273  in General Motors on August 28, 2024 and sell it today you would earn a total of  747.00  from holding General Motors or generate 14.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.24%
ValuesDaily Returns

General Motors  vs.  EAST AFRICAN BREWERIES

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 12 (%) 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.
EAST AFRICAN BREWERIES 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in EAST AFRICAN BREWERIES are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, EAST AFRICAN sustained solid returns over the last few months and may actually be approaching a breakup point.

GM and EAST AFRICAN Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and EAST AFRICAN

The main advantage of trading using opposite GM and EAST AFRICAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, EAST AFRICAN 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 EAST AFRICAN will offset losses from the drop in EAST AFRICAN's long position.
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The idea behind General Motors and EAST AFRICAN BREWERIES 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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