Correlation Between GM and Par Drugs

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

Diversification Opportunities for GM and Par Drugs

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between GM and Par is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Par Drugs And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Par Drugs And 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 Par Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Par Drugs And has no effect on the direction of GM i.e., GM and Par Drugs go up and down completely randomly.

Pair Corralation between GM and Par Drugs

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.57 times more return on investment than Par Drugs. However, General Motors is 1.77 times less risky than Par Drugs. It trades about 0.07 of its potential returns per unit of risk. Par Drugs And is currently generating about 0.01 per unit of risk. If you would invest  3,503  in General Motors on November 9, 2024 and sell it today you would earn a total of  1,290  from holding General Motors or generate 36.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.5%
ValuesDaily Returns

General Motors  vs.  Par Drugs And

 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.
Par Drugs And 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Par Drugs And 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

GM and Par Drugs Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Par Drugs

The main advantage of trading using opposite GM and Par Drugs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Par Drugs 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 Par Drugs will offset losses from the drop in Par Drugs' long position.
The idea behind General Motors and Par Drugs And 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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