Correlation Between GM and Graphic Packaging

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

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

Diversification Opportunities for GM and Graphic Packaging

0.75

Correlation Coefficient

GM  Graphic Packaging

Poor diversification

The 3 months correlation between GM and Graphic is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Graphic Packaging Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graphic Packaging Holding 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 Graphic Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graphic Packaging Holding has no effect on the direction of GM i.e., GM and Graphic Packaging go up and down completely randomly.

Pair Corralation between GM and Graphic Packaging

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.91 times more return on investment than Graphic Packaging. However, General Motors is 1.1 times less risky than Graphic Packaging. It trades about 0.13 of its potential returns per unit of risk. Graphic Packaging Holding is currently generating about 0.08 per unit of risk. If you would invest  4,093  in General Motors on February 3, 2024 and sell it today you would earn a total of  374.00  from holding General Motors or generate 9.14% return on investment over 90 days.

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

General Motors  vs.  Graphic Packaging Holding

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 unsteady primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Graphic Packaging Holding

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Graphic Packaging Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Graphic Packaging may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with GM and Graphic Packaging

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

The idea behind General Motors and Graphic Packaging Holding 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..