Correlation Between GM and Leggett Platt
Can any of the company-specific risk be diversified away by investing in both GM and Leggett Platt 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 Leggett Platt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Leggett Platt, you can compare the effects of market volatilities on GM and Leggett Platt 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 Leggett Platt. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Leggett Platt.
Diversification Opportunities for GM and Leggett Platt
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Leggett is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Leggett Platt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leggett Platt 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 Leggett Platt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leggett Platt has no effect on the direction of GM i.e., GM and Leggett Platt go up and down completely randomly.
Pair Corralation between GM and Leggett Platt
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Leggett Platt. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.21 times less risky than Leggett Platt. The stock trades about -0.17 of its potential returns per unit of risk. The Leggett Platt is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 1,204 in Leggett Platt on September 12, 2024 and sell it today you would lose (35.00) from holding Leggett Platt or give up 2.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. Leggett Platt
Performance |
| Timeline |
| General Motors |
| Leggett Platt |
GM and Leggett Platt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Leggett Platt
The main advantage of trading using opposite GM and Leggett Platt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Leggett Platt 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 Leggett Platt will offset losses from the drop in Leggett Platt's long position.The idea behind General Motors and Leggett Platt 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.| Leggett Platt vs. Melia Hotels | Leggett Platt vs. Indutrade AB | Leggett Platt vs. LPKF Laser Electronics | Leggett Platt vs. Flow Traders NV |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
Other Complementary Tools
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators |