Correlation Between GM and Volvo AB
Can any of the company-specific risk be diversified away by investing in both GM and Volvo AB 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 Volvo AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Volvo AB Series, you can compare the effects of market volatilities on GM and Volvo AB 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 Volvo AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Volvo AB.
Diversification Opportunities for GM and Volvo AB
Very weak diversification
The 3 months correlation between GM and Volvo is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Volvo AB Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo AB Series 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 Volvo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo AB Series has no effect on the direction of GM i.e., GM and Volvo AB go up and down completely randomly.
Pair Corralation between GM and Volvo AB
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Volvo AB. In addition to that, GM is 2.1 times more volatile than Volvo AB Series. It trades about -0.16 of its total potential returns per unit of risk. Volvo AB Series is currently generating about 0.05 per unit of volatility. If you would invest 28,195 in Volvo AB Series on September 13, 2024 and sell it today you would earn a total of 335.00 from holding Volvo AB Series or generate 1.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. Volvo AB Series
Performance |
| Timeline |
| General Motors |
| Volvo AB Series |
GM and Volvo AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Volvo AB
The main advantage of trading using opposite GM and Volvo AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Volvo AB 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 Volvo AB will offset losses from the drop in Volvo AB's long position.The idea behind General Motors and Volvo AB Series 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.| Volvo AB vs. Alfa Financial Software | Volvo AB vs. Hochschild Mining plc | Volvo AB vs. Anglesey Mining | Volvo AB vs. Sunny Optical Technology |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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