Correlation Between GM and LS Materials
Can any of the company-specific risk be diversified away by investing in both GM and LS Materials 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 LS Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and LS Materials, you can compare the effects of market volatilities on GM and LS Materials 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 LS Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and LS Materials.
Diversification Opportunities for GM and LS Materials
-0.92 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and 417200 is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and LS Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LS Materials 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 LS Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LS Materials has no effect on the direction of GM i.e., GM and LS Materials go up and down completely randomly.
Pair Corralation between GM and LS Materials
Allowing for the 90-day total investment horizon GM is expected to generate 10.75 times less return on investment than LS Materials. But when comparing it to its historical volatility, General Motors is 9.6 times less risky than LS Materials. It trades about 0.05 of its potential returns per unit of risk. LS Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 599,449 in LS Materials on August 29, 2024 and sell it today you would earn a total of 593,551 from holding LS Materials or generate 99.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 47.58% |
| Values | Daily Returns |
General Motors vs. LS Materials
Performance |
| Timeline |
| General Motors |
| LS Materials |
GM and LS Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and LS Materials
The main advantage of trading using opposite GM and LS Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, LS Materials 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 LS Materials will offset losses from the drop in LS Materials' long position.The idea behind General Motors and LS Materials 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.| LS Materials vs. Samsung Electronics Co | LS Materials vs. Samsung Electronics Co | LS Materials vs. LG Energy Solution | LS Materials vs. SK Hynix |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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