Correlation Between GM and Applied Industrial
Can any of the company-specific risk be diversified away by investing in both GM and Applied Industrial 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 Applied Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Applied Industrial Technologies, you can compare the effects of market volatilities on GM and Applied Industrial 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 Applied Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Applied Industrial.
Diversification Opportunities for GM and Applied Industrial
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Applied is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Applied Industrial Technologie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Industrial 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 Applied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Industrial has no effect on the direction of GM i.e., GM and Applied Industrial go up and down completely randomly.
Pair Corralation between GM and Applied Industrial
Allowing for the 90-day total investment horizon GM is expected to generate 1.78 times less return on investment than Applied Industrial. In addition to that, GM is 1.15 times more volatile than Applied Industrial Technologies. It trades about 0.04 of its total potential returns per unit of risk. Applied Industrial Technologies is currently generating about 0.09 per unit of volatility. If you would invest 12,928 in Applied Industrial Technologies on August 23, 2024 and sell it today you would earn a total of 13,995 from holding Applied Industrial Technologies or generate 108.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Applied Industrial Technologie
Performance |
| Timeline |
| General Motors |
| Applied Industrial |
GM and Applied Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Applied Industrial
The main advantage of trading using opposite GM and Applied Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Applied Industrial 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 Applied Industrial will offset losses from the drop in Applied Industrial's long position.The idea behind General Motors and Applied Industrial Technologies 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.| Applied Industrial vs. Core Main | Applied Industrial vs. WW Grainger | Applied Industrial vs. DXP Enterprises | Applied Industrial vs. SiteOne Landscape Supply |
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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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