Correlation Between GM and Alm Brand
Can any of the company-specific risk be diversified away by investing in both GM and Alm Brand 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 Alm Brand into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Alm Brand, you can compare the effects of market volatilities on GM and Alm Brand 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 Alm Brand. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Alm Brand.
Diversification Opportunities for GM and Alm Brand
Very weak diversification
The 3 months correlation between GM and Alm is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Alm Brand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alm Brand 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 Alm Brand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alm Brand has no effect on the direction of GM i.e., GM and Alm Brand go up and down completely randomly.
Pair Corralation between GM and Alm Brand
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.36 times more return on investment than Alm Brand. However, GM is 2.36 times more volatile than Alm Brand. It trades about 0.17 of its potential returns per unit of risk. Alm Brand is currently generating about 0.1 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Alm Brand
Performance |
| Timeline |
| General Motors |
| Alm Brand |
GM and Alm Brand Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Alm Brand
The main advantage of trading using opposite GM and Alm Brand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Alm Brand 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 Alm Brand will offset losses from the drop in Alm Brand's long position.The idea behind General Motors and Alm Brand 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.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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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