Correlation Between GM and St James’s
Can any of the company-specific risk be diversified away by investing in both GM and St James’s 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 St James’s into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and St Jamess Place, you can compare the effects of market volatilities on GM and St James’s 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 St James’s. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and St James’s.
Diversification Opportunities for GM and St James’s
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and 1IV is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and St Jamess Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on St Jamess Place 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 St James’s. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of St Jamess Place has no effect on the direction of GM i.e., GM and St James’s go up and down completely randomly.
Pair Corralation between GM and St James’s
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the St James’s. In addition to that, GM is 1.72 times more volatile than St Jamess Place. It trades about -0.16 of its total potential returns per unit of risk. St Jamess Place is currently generating about 0.3 per unit of volatility. If you would invest 974.00 in St Jamess Place on September 14, 2024 and sell it today you would earn a total of 99.00 from holding St Jamess Place or generate 10.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. St Jamess Place
Performance |
| Timeline |
| General Motors |
| St Jamess Place |
GM and St James’s Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and St James’s
The main advantage of trading using opposite GM and St James’s positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, St James’s 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 St James’s will offset losses from the drop in St James’s' long position.The idea behind General Motors and St Jamess Place 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.| St James’s vs. Cogent Communications Holdings | St James’s vs. Mobilezone Holding AG | St James’s vs. Digilife Technologies Limited | St James’s vs. ACCSYS TECHPLC EO |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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