Correlation Between General Motors and Marcopolo

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

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

Diversification Opportunities for General Motors and Marcopolo

0.52

Correlation Coefficient

General Motors  Marcopolo

Very weak diversification

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

Pair Corralation between General Motors and Marcopolo

Assuming the 90 days trading horizon General Motors is expected to generate 0.99 times more return on investment than Marcopolo. However, General Motors is 1.01 times less risky than Marcopolo. It trades about 0.03 of its potential returns per unit of risk. Marcopolo SA is currently generating about -0.42 per unit of risk. If you would invest  5,691  in General Motors on February 3, 2024 and sell it today you would earn a total of  43.00  from holding General Motors or generate 0.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Marcopolo SA

General Motors

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, General Motors sustained solid returns over the last few months and may actually be approaching a breakup point.

Marcopolo SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marcopolo SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Marcopolo is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with General Motors and Marcopolo

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

The idea behind General Motors and Marcopolo SA 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.