Correlation Between GM and SOS
Can any of the company-specific risk be diversified away by investing in both GM and SOS 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 SOS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and SOS Limited, you can compare the effects of market volatilities on GM and SOS 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 SOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and SOS.
Diversification Opportunities for GM and SOS
Good diversification
The 3 months correlation between GM and SOS is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SOS Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOS 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 SOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOS Limited has no effect on the direction of GM i.e., GM and SOS go up and down completely randomly.
Pair Corralation between GM and SOS
Allowing for the 90-day total investment horizon GM is expected to generate 2.79 times less return on investment than SOS. But when comparing it to its historical volatility, General Motors is 5.01 times less risky than SOS. It trades about 0.17 of its potential returns per unit of risk. SOS Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,125 in SOS Limited on September 1, 2024 and sell it today you would earn a total of 115.00 from holding SOS Limited or generate 10.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. SOS Limited
Performance |
| Timeline |
| General Motors |
| SOS Limited |
GM and SOS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and SOS
The main advantage of trading using opposite GM and SOS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, SOS 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 SOS will offset losses from the drop in SOS's long position.The idea behind General Motors and SOS 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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