Correlation Between GM and Action Electronics
Can any of the company-specific risk be diversified away by investing in both GM and Action Electronics 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 Action Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Action Electronics Co, you can compare the effects of market volatilities on GM and Action Electronics 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 Action Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Action Electronics.
Diversification Opportunities for GM and Action Electronics
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Action is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Action Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action 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 Action Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Electronics has no effect on the direction of GM i.e., GM and Action Electronics go up and down completely randomly.
Pair Corralation between GM and Action Electronics
Allowing for the 90-day total investment horizon GM is expected to generate 1.21 times less return on investment than Action Electronics. But when comparing it to its historical volatility, General Motors is 1.02 times less risky than Action Electronics. It trades about 0.05 of its potential returns per unit of risk. Action Electronics Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,330 in Action Electronics Co on September 3, 2024 and sell it today you would earn a total of 755.00 from holding Action Electronics Co or generate 56.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 96.97% |
| Values | Daily Returns |
General Motors vs. Action Electronics Co
Performance |
| Timeline |
| General Motors |
| Action Electronics |
GM and Action Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Action Electronics
The main advantage of trading using opposite GM and Action Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Action Electronics 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 Action Electronics will offset losses from the drop in Action Electronics' long position.The idea behind General Motors and Action Electronics 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.| Action Electronics vs. Amtran Technology Co | Action Electronics vs. Asia Optical Co | Action Electronics vs. Emerging Display Technologies | Action Electronics vs. Bright Led Electronics |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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