Correlation Between GM and Etsy
Can any of the company-specific risk be diversified away by investing in both GM and Etsy 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 Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Etsy Inc, you can compare the effects of market volatilities on GM and Etsy 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 Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Etsy.
Diversification Opportunities for GM and Etsy
Weak diversification
The 3 months correlation between GM and Etsy is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc 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 Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of GM i.e., GM and Etsy go up and down completely randomly.
Pair Corralation between GM and Etsy
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.75 times more return on investment than Etsy. However, General Motors is 1.34 times less risky than Etsy. It trades about 0.05 of its potential returns per unit of risk. Etsy Inc is currently generating about -0.05 per unit of risk. If you would invest 3,762 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,797 from holding General Motors or generate 47.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.14% |
| Values | Daily Returns |
General Motors vs. Etsy Inc
Performance |
| Timeline |
| General Motors |
| Etsy Inc |
GM and Etsy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Etsy
The main advantage of trading using opposite GM and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.The idea behind General Motors and Etsy Inc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
Other Complementary Tools
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments |