Correlation Between GM and Global Growth
Can any of the company-specific risk be diversified away by investing in both GM and Global Growth 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 Global Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Global Growth Fund, you can compare the effects of market volatilities on GM and Global Growth 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 Global Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Global Growth.
Diversification Opportunities for GM and Global Growth
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and Global is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Global Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Growth 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 Global Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Growth has no effect on the direction of GM i.e., GM and Global Growth go up and down completely randomly.
Pair Corralation between GM and Global Growth
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Global Growth. In addition to that, GM is 3.56 times more volatile than Global Growth Fund. It trades about -0.15 of its total potential returns per unit of risk. Global Growth Fund is currently generating about -0.02 per unit of volatility. If you would invest 1,316 in Global Growth Fund on September 13, 2024 and sell it today you would lose (5.00) from holding Global Growth Fund or give up 0.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Global Growth Fund
Performance |
| Timeline |
| General Motors |
| Global Growth |
GM and Global Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Global Growth
The main advantage of trading using opposite GM and Global Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Global Growth 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 Global Growth will offset losses from the drop in Global Growth's long position.The idea behind General Motors and Global Growth Fund 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.| Global Growth vs. Angel Oak Financial | Global Growth vs. Goldman Sachs Financial | Global Growth vs. John Hancock Financial | Global Growth vs. Gabelli Global Financial |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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