Correlation Between GM and HCL Technologies

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

Diversification Opportunities for GM and HCL Technologies

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between GM and HCL is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HCL Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCL Technologies 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 HCL Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCL Technologies has no effect on the direction of GM i.e., GM and HCL Technologies go up and down completely randomly.

Pair Corralation between GM and HCL Technologies

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.22 times more return on investment than HCL Technologies. However, GM is 1.22 times more volatile than HCL Technologies Limited. It trades about 0.32 of its potential returns per unit of risk. HCL Technologies Limited is currently generating about 0.04 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 
StrengthWeak
Accuracy90.48%
ValuesDaily Returns

General Motors  vs.  HCL Technologies Limited

 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.
HCL Technologies 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in HCL Technologies Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, HCL Technologies may actually be approaching a critical reversion point that can send shares even higher in December 2024.

GM and HCL Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and HCL Technologies

The main advantage of trading using opposite GM and HCL Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, HCL Technologies 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 HCL Technologies will offset losses from the drop in HCL Technologies' long position.
The idea behind General Motors and HCL Technologies 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.
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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