Correlation Between GM and 70GD
Can any of the company-specific risk be diversified away by investing in both GM and 70GD 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 70GD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and 70GD, you can compare the effects of market volatilities on GM and 70GD 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 70GD. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and 70GD.
Diversification Opportunities for GM and 70GD
Significant diversification
The 3 months correlation between GM and 70GD is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and 70GD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 70GD 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 70GD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 70GD has no effect on the direction of GM i.e., GM and 70GD go up and down completely randomly.
Pair Corralation between GM and 70GD
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the 70GD. In addition to that, GM is 2.3 times more volatile than 70GD. It trades about -0.3 of its total potential returns per unit of risk. 70GD is currently generating about 0.22 per unit of volatility. If you would invest 68.00 in 70GD on September 24, 2024 and sell it today you would earn a total of 3.00 from holding 70GD or generate 4.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
General Motors vs. 70GD
Performance |
| Timeline |
| General Motors |
| 70GD |
GM and 70GD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and 70GD
The main advantage of trading using opposite GM and 70GD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, 70GD 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 70GD will offset losses from the drop in 70GD's long position.The idea behind General Motors and 70GD 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.| 70GD vs. Ryanair Holdings plc | 70GD vs. CVS Health Corp | 70GD vs. Norwegian Air Shuttle | 70GD vs. Air Products Chemicals |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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