Correlation Between GM and InRetail Peru

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

Diversification Opportunities for GM and InRetail Peru

0.79
  Correlation Coefficient
 GM

Poor diversification

The 3 months correlation between GM and InRetail is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and InRetail Peru Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InRetail Peru Corp 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 InRetail Peru. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InRetail Peru Corp has no effect on the direction of GM i.e., GM and InRetail Peru go up and down completely randomly.

Pair Corralation between GM and InRetail Peru

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.58 times more return on investment than InRetail Peru. However, GM is 1.58 times more volatile than InRetail Peru Corp. It trades about 0.12 of its potential returns per unit of risk. InRetail Peru Corp is currently generating about -0.05 per unit of risk. If you would invest  3,849  in General Motors on August 28, 2024 and sell it today you would earn a total of  2,171  from holding General Motors or generate 56.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy97.13%
ValuesDaily Returns

General Motors  vs.  InRetail Peru Corp

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
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.
InRetail Peru Corp 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in InRetail Peru Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, InRetail Peru is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

GM and InRetail Peru Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and InRetail Peru

The main advantage of trading using opposite GM and InRetail Peru positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, InRetail Peru 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 InRetail Peru will offset losses from the drop in InRetail Peru's long position.
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The idea behind General Motors and InRetail Peru Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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