Correlation Between ECD Automotive and GM

Can any of the company-specific risk be diversified away by investing in both ECD Automotive and GM 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 ECD Automotive and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ECD Automotive Design and General Motors, you can compare the effects of market volatilities on ECD Automotive and GM 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 ECD Automotive with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECD Automotive and GM.

Diversification Opportunities for ECD Automotive and GM

0.48

Correlation Coefficient

ECD Automotive  GM

Very weak diversification

The 3 months correlation between ECD and GM is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and ECD Automotive 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 ECD Automotive Design are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of ECD Automotive i.e., ECD Automotive and GM go up and down completely randomly.

Pair Corralation between ECD Automotive and GM

Given the investment horizon of 90 days ECD Automotive Design is expected to generate 5.32 times more return on investment than GM. However, ECD Automotive is 5.32 times more volatile than General Motors. It trades about 0.22 of its potential returns per unit of risk. General Motors is currently generating about 0.05 per unit of risk. If you would invest  96.00  in ECD Automotive Design on February 5, 2024 and sell it today you would earn a total of  36.00  from holding ECD Automotive Design or generate 37.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ECD Automotive Design  vs.  General Motors

ECD Automotive Design

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ECD Automotive Design are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, ECD Automotive sustained solid returns over the last few months and may actually be approaching a breakup point.

General Motors

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ECD Automotive and GM

The main advantage of trading using opposite ECD Automotive and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ECD Automotive position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.

The idea behind ECD Automotive Design and General Motors 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.