Correlation Between GM and LandMark Optoelectronics
Can any of the company-specific risk be diversified away by investing in both GM and LandMark Optoelectronics 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 LandMark Optoelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and LandMark Optoelectronics, you can compare the effects of market volatilities on GM and LandMark Optoelectronics 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 LandMark Optoelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and LandMark Optoelectronics.
Diversification Opportunities for GM and LandMark Optoelectronics
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and LandMark is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and LandMark Optoelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LandMark Optoelectronics 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 LandMark Optoelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LandMark Optoelectronics has no effect on the direction of GM i.e., GM and LandMark Optoelectronics go up and down completely randomly.
Pair Corralation between GM and LandMark Optoelectronics
Allowing for the 90-day total investment horizon GM is expected to generate 2.81 times less return on investment than LandMark Optoelectronics. But when comparing it to its historical volatility, General Motors is 1.85 times less risky than LandMark Optoelectronics. It trades about 0.07 of its potential returns per unit of risk. LandMark Optoelectronics is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 9,688 in LandMark Optoelectronics on August 31, 2024 and sell it today you would earn a total of 22,512 from holding LandMark Optoelectronics or generate 232.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.86% |
| Values | Daily Returns |
General Motors vs. LandMark Optoelectronics
Performance |
| Timeline |
| General Motors |
| LandMark Optoelectronics |
GM and LandMark Optoelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and LandMark Optoelectronics
The main advantage of trading using opposite GM and LandMark Optoelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, LandMark Optoelectronics 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 LandMark Optoelectronics will offset losses from the drop in LandMark Optoelectronics' long position.The idea behind General Motors and LandMark Optoelectronics 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.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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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