Correlation Between GM and HF Company
Can any of the company-specific risk be diversified away by investing in both GM and HF Company 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 HF Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and HF Company SA, you can compare the effects of market volatilities on GM and HF Company 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 HF Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and HF Company.
Diversification Opportunities for GM and HF Company
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and ALHF is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HF Company SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HF Company SA 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 HF Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HF Company SA has no effect on the direction of GM i.e., GM and HF Company go up and down completely randomly.
Pair Corralation between GM and HF Company
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.09 times more return on investment than HF Company. However, GM is 2.09 times more volatile than HF Company SA. It trades about 0.04 of its potential returns per unit of risk. HF Company SA is currently generating about -0.02 per unit of risk. If you would invest 4,877 in General Motors on September 20, 2024 and sell it today you would earn a total of 238.00 from holding General Motors or generate 4.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.92% |
| Values | Daily Returns |
General Motors vs. HF Company SA
Performance |
| Timeline |
| General Motors |
| HF Company SA |
GM and HF Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and HF Company
The main advantage of trading using opposite GM and HF Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, HF Company 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 HF Company will offset losses from the drop in HF Company's long position.The idea behind General Motors and HF Company SA 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.| HF Company vs. Broadpeak SA | HF Company vs. Impulse Fitness Solutions | HF Company vs. Axway Software | HF Company vs. Eutelsat Communications SA |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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