Correlation Between GM and AJ Advance
Can any of the company-specific risk be diversified away by investing in both GM and AJ Advance 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 AJ Advance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and AJ Advance Technology, you can compare the effects of market volatilities on GM and AJ Advance 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 AJ Advance. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and AJ Advance.
Diversification Opportunities for GM and AJ Advance
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and AJA is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and AJ Advance Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AJ Advance Technology 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 AJ Advance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AJ Advance Technology has no effect on the direction of GM i.e., GM and AJ Advance go up and down completely randomly.
Pair Corralation between GM and AJ Advance
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the AJ Advance. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.52 times less risky than AJ Advance. The stock trades about -0.22 of its potential returns per unit of risk. The AJ Advance Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 13.00 in AJ Advance Technology on November 28, 2024 and sell it today you would lose (1.00) from holding AJ Advance Technology or give up 7.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. AJ Advance Technology
Performance |
| Timeline |
| General Motors |
| AJ Advance Technology |
GM and AJ Advance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and AJ Advance
The main advantage of trading using opposite GM and AJ Advance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, AJ Advance 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 AJ Advance will offset losses from the drop in AJ Advance's long position.The idea behind General Motors and AJ Advance Technology 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.| AJ Advance vs. Eastern Commercial Leasing | AJ Advance vs. Finansa Public | AJ Advance vs. General Environmental Conservation | AJ Advance vs. CPL Group Public |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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