Correlation Between GM and Svenska Handelsbanken

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

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

Diversification Opportunities for GM and Svenska Handelsbanken

-0.52

Correlation Coefficient

GM  Svenska Handelsbanken

Excellent diversification

The 3 months correlation between GM and Svenska is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Svenska Handelsbanken AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Svenska Handelsbanken 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 Svenska Handelsbanken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Svenska Handelsbanken has no effect on the direction of GM i.e., GM and Svenska Handelsbanken go up and down completely randomly.

Pair Corralation between GM and Svenska Handelsbanken

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.29 times more return on investment than Svenska Handelsbanken. However, GM is 1.29 times more volatile than Svenska Handelsbanken AB. It trades about 0.08 of its potential returns per unit of risk. Svenska Handelsbanken AB is currently generating about 0.05 per unit of risk. If you would invest  3,291  in General Motors on February 3, 2024 and sell it today you would earn a total of  1,195  from holding General Motors or generate 36.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

General Motors  vs.  Svenska Handelsbanken AB

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.

Svenska Handelsbanken

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Svenska Handelsbanken AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with GM and Svenska Handelsbanken

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

The idea behind General Motors and Svenska Handelsbanken AB 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.