Correlation Between GM and Great Ajax
Can any of the company-specific risk be diversified away by investing in both GM and Great Ajax 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 Great Ajax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Great Ajax Corp, you can compare the effects of market volatilities on GM and Great Ajax 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 Great Ajax. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Great Ajax.
Diversification Opportunities for GM and Great Ajax
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Great is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Great Ajax Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Ajax Corp 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 Great Ajax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Ajax Corp has no effect on the direction of GM i.e., GM and Great Ajax go up and down completely randomly.
Pair Corralation between GM and Great Ajax
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.74 times more return on investment than Great Ajax. However, General Motors is 1.35 times less risky than Great Ajax. It trades about 0.05 of its potential returns per unit of risk. Great Ajax Corp is currently generating about -0.04 per unit of risk. If you would invest 3,807 in General Motors on August 24, 2024 and sell it today you would earn a total of 2,046 from holding General Motors or generate 53.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Great Ajax Corp
Performance |
| Timeline |
| General Motors |
| Great Ajax Corp |
GM and Great Ajax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Great Ajax
The main advantage of trading using opposite GM and Great Ajax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Great Ajax 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 Great Ajax will offset losses from the drop in Great Ajax's long position.The idea behind General Motors and Great Ajax Corp 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.| Great Ajax vs. Ellington Financial | Great Ajax vs. Dynex Capital | Great Ajax vs. Ares Commercial Real | Great Ajax vs. Cherry Hill Mortgage |
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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