Correlation Between GM and Balanced Fund
Can any of the company-specific risk be diversified away by investing in both GM and Balanced Fund 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 Balanced Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Balanced Fund I, you can compare the effects of market volatilities on GM and Balanced Fund 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 Balanced Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Balanced Fund.
Diversification Opportunities for GM and Balanced Fund
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and BALANCED is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Balanced Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund I 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 Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund I has no effect on the direction of GM i.e., GM and Balanced Fund go up and down completely randomly.
Pair Corralation between GM and Balanced Fund
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.84 times more return on investment than Balanced Fund. However, GM is 3.84 times more volatile than Balanced Fund I. It trades about 0.05 of its potential returns per unit of risk. Balanced Fund I is currently generating about 0.1 per unit of risk. If you would invest 3,805 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,754 from holding General Motors or generate 46.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Balanced Fund I
Performance |
| Timeline |
| General Motors |
| Balanced Fund I |
GM and Balanced Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Balanced Fund
The main advantage of trading using opposite GM and Balanced Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Balanced Fund 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 Balanced Fund will offset losses from the drop in Balanced Fund's long position.The idea behind General Motors and Balanced Fund I 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.| Balanced Fund vs. American Funds American | Balanced Fund vs. American Funds American | Balanced Fund vs. American Balanced | Balanced Fund vs. American Balanced Fund |
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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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