Correlation Between GM and Espey Mfg

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

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

Diversification Opportunities for GM and Espey Mfg

0.45

Correlation Coefficient

GM  Espey Mfg

Very weak diversification

The 3 months correlation between GM and Espey is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Espey Mfg Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Espey Mfg Electronics 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 Espey Mfg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Espey Mfg Electronics has no effect on the direction of GM i.e., GM and Espey Mfg go up and down completely randomly.

Pair Corralation between GM and Espey Mfg

Allowing for the 90-day total investment horizon GM is expected to generate 1.43 times less return on investment than Espey Mfg. But when comparing it to its historical volatility, General Motors is 1.5 times less risky than Espey Mfg. It trades about 0.09 of its potential returns per unit of risk. Espey Mfg Electronics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,472  in Espey Mfg Electronics on September 12, 2024 and sell it today you would earn a total of  440.00  from holding Espey Mfg Electronics or generate 17.8% return on investment over 90 days.

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

General Motors  vs.  Espey Mfg Electronics

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

Espey Mfg Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Espey Mfg Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Espey Mfg reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Espey Mfg

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

The idea behind General Motors and Espey Mfg Electronics 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.

Check out your portfolio center.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.