Correlation Between GM and TT Electronics
Can any of the company-specific risk be diversified away by investing in both GM and TT Electronics 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 TT Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and TT Electronics PLC, you can compare the effects of market volatilities on GM and TT Electronics 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 TT Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and TT Electronics.
Diversification Opportunities for GM and TT Electronics
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and 7TT is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and TT Electronics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TT Electronics PLC 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 TT Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TT Electronics PLC has no effect on the direction of GM i.e., GM and TT Electronics go up and down completely randomly.
Pair Corralation between GM and TT Electronics
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the TT Electronics. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.56 times less risky than TT Electronics. The stock trades about -0.15 of its potential returns per unit of risk. The TT Electronics PLC is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 88.00 in TT Electronics PLC on September 15, 2024 and sell it today you would earn a total of 41.00 from holding TT Electronics PLC or generate 46.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. TT Electronics PLC
Performance |
| Timeline |
| General Motors |
| TT Electronics PLC |
GM and TT Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and TT Electronics
The main advantage of trading using opposite GM and TT Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, TT Electronics 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 TT Electronics will offset losses from the drop in TT Electronics' long position.The idea behind General Motors and TT Electronics PLC 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.| TT Electronics vs. Apple Inc | TT Electronics vs. Apple Inc | TT Electronics vs. Apple Inc | TT Electronics vs. Apple Inc |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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