Correlation Between GM and Postal Savings
Can any of the company-specific risk be diversified away by investing in both GM and Postal Savings 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 Postal Savings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Postal Savings Bank, you can compare the effects of market volatilities on GM and Postal Savings 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 Postal Savings. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Postal Savings.
Diversification Opportunities for GM and Postal Savings
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and Postal is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Postal Savings Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Postal Savings Bank 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 Postal Savings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Postal Savings Bank has no effect on the direction of GM i.e., GM and Postal Savings go up and down completely randomly.
Pair Corralation between GM and Postal Savings
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.53 times more return on investment than Postal Savings. However, GM is 1.53 times more volatile than Postal Savings Bank. It trades about 0.07 of its potential returns per unit of risk. Postal Savings Bank is currently generating about 0.01 per unit of risk. If you would invest 5,273 in General Motors on August 28, 2024 and sell it today you would earn a total of 206.00 from holding General Motors or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Postal Savings Bank
Performance |
| Timeline |
| General Motors |
| Postal Savings Bank |
GM and Postal Savings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Postal Savings
The main advantage of trading using opposite GM and Postal Savings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Postal Savings 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 Postal Savings will offset losses from the drop in Postal Savings' long position.The idea behind General Motors and Postal Savings Bank 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.| Postal Savings vs. Deutsche Bank Aktiengesellschaft | Postal Savings vs. Superior Plus Corp | Postal Savings vs. NMI Holdings | Postal Savings vs. Origin Agritech |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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