Correlation Between GM and Amgen

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

By analyzing existing cross correlation between General Motors and Amgen Inc, you can compare the effects of market volatilities on GM and Amgen 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 Amgen. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Amgen.

Diversification Opportunities for GM and Amgen

-0.43

Correlation Coefficient

GM  Amgen

Very good diversification

The 3 months correlation between GM and Amgen is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen Inc 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 Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of GM i.e., GM and Amgen go up and down completely randomly.

Pair Corralation between GM and Amgen

Allowing for the 90-day total investment horizon GM is expected to generate 6.28 times less return on investment than Amgen. But when comparing it to its historical volatility, General Motors is 1.97 times less risky than Amgen. It trades about 0.06 of its potential returns per unit of risk. Amgen Inc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  26,920  in Amgen Inc on February 7, 2024 and sell it today you would earn a total of  3,028  from holding Amgen Inc or generate 11.25% return on investment over 90 days.

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

General Motors  vs.  Amgen Inc

General Motors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 13 (%) 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.

Amgen Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amgen Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Amgen is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Amgen

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

The idea behind General Motors and Amgen Inc 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.