Correlation Between GM and HS Valve
Can any of the company-specific risk be diversified away by investing in both GM and HS Valve 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 HS Valve into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and HS Valve Co, you can compare the effects of market volatilities on GM and HS Valve 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 HS Valve. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and HS Valve.
Diversification Opportunities for GM and HS Valve
Poor diversification
The 3 months correlation between GM and 039610 is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HS Valve Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HS Valve 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 HS Valve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HS Valve has no effect on the direction of GM i.e., GM and HS Valve go up and down completely randomly.
Pair Corralation between GM and HS Valve
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the HS Valve. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.23 times less risky than HS Valve. The stock trades about -0.13 of its potential returns per unit of risk. The HS Valve Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 803,000 in HS Valve Co on November 5, 2024 and sell it today you would earn a total of 94,000 from holding HS Valve Co or generate 11.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 85.0% |
| Values | Daily Returns |
General Motors vs. HS Valve Co
Performance |
| Timeline |
| General Motors |
| HS Valve |
GM and HS Valve Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and HS Valve
The main advantage of trading using opposite GM and HS Valve positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, HS Valve 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 HS Valve will offset losses from the drop in HS Valve's long position.The idea behind General Motors and HS Valve 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.| HS Valve vs. PH Tech Co | HS Valve vs. Kolon Plastics | HS Valve vs. National Plastic Co | HS Valve vs. Ecoplastic |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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