Correlation Between Dorman Products and GM

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

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

Diversification Opportunities for Dorman Products and GM

0.72

Correlation Coefficient

Dorman Products  GM

Poor diversification

The 3 months correlation between Dorman and GM is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Dorman Products 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 Dorman Products 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 Dorman Products i.e., Dorman Products and GM go up and down completely randomly.

Pair Corralation between Dorman Products and GM

Given the investment horizon of 90 days Dorman Products is expected to under-perform the GM. But the stock apears to be less risky and, when comparing its historical volatility, Dorman Products is 1.17 times less risky than GM. The stock trades about -0.31 of its potential returns per unit of risk. The General Motors is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,540  in General Motors on January 29, 2024 and sell it today you would earn a total of  44.00  from holding General Motors or generate 0.97% return on investment over 90 days.

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

Dorman Products  vs.  General Motors

Dorman Products

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Dorman Products is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

General Motors

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 19 (%) 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 Dorman Products and GM

The main advantage of trading using opposite Dorman Products and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dorman Products 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 Dorman Products 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.