Correlation Between GM and Capcom Co

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

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

Diversification Opportunities for GM and Capcom Co

0.23

Correlation Coefficient

GM  Capcom Co

Modest diversification

The 3 months correlation between GM and Capcom is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Capcom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capcom Co 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 Capcom Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capcom Co has no effect on the direction of GM i.e., GM and Capcom Co go up and down completely randomly.

Pair Corralation between GM and Capcom Co

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.57 times more return on investment than Capcom Co. However, General Motors is 1.74 times less risky than Capcom Co. It trades about 0.1 of its potential returns per unit of risk. Capcom Co is currently generating about 0.04 per unit of risk. If you would invest  4,612  in General Motors on July 14, 2024 and sell it today you would earn a total of  175.00  from holding General Motors or generate 3.79% return on investment over 90 days.

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

General Motors  vs.  Capcom Co

General Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Capcom Co

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capcom Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Capcom Co reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Capcom Co

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

The idea behind General Motors and Capcom Co 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 Valuation module to check real value of public entities based on technical and fundamental data.