Correlation Between GM and Tenaris SA
Can any of the company-specific risk be diversified away by investing in both GM and Tenaris SA 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 Tenaris SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Tenaris SA ADR, you can compare the effects of market volatilities on GM and Tenaris SA 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 Tenaris SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Tenaris SA.
Diversification Opportunities for GM and Tenaris SA
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Tenaris is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tenaris SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA ADR 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 Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA ADR has no effect on the direction of GM i.e., GM and Tenaris SA go up and down completely randomly.
Pair Corralation between GM and Tenaris SA
Allowing for the 90-day total investment horizon GM is expected to generate 1.22 times less return on investment than Tenaris SA. But when comparing it to its historical volatility, General Motors is 1.01 times less risky than Tenaris SA. It trades about 0.32 of its potential returns per unit of risk. Tenaris SA ADR is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 3,183 in Tenaris SA ADR on August 27, 2024 and sell it today you would earn a total of 559.00 from holding Tenaris SA ADR or generate 17.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Tenaris SA ADR
Performance |
| Timeline |
| General Motors |
| Tenaris SA ADR |
GM and Tenaris SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Tenaris SA
The main advantage of trading using opposite GM and Tenaris SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Tenaris SA 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 Tenaris SA will offset losses from the drop in Tenaris SA's long position.The idea behind General Motors and Tenaris SA ADR 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.| Tenaris SA vs. TechnipFMC PLC | Tenaris SA vs. Now Inc | Tenaris SA vs. ChampionX | Tenaris SA vs. Baker Hughes Co |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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