Correlation Between GM and Albemarle
Can any of the company-specific risk be diversified away by investing in both GM and Albemarle 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 Albemarle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Albemarle, you can compare the effects of market volatilities on GM and Albemarle 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 Albemarle. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Albemarle.
Diversification Opportunities for GM and Albemarle
Very weak diversification
The 3 months correlation between GM and Albemarle is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Albemarle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle 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 Albemarle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle has no effect on the direction of GM i.e., GM and Albemarle go up and down completely randomly.
Pair Corralation between GM and Albemarle
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Albemarle. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.47 times less risky than Albemarle. The stock trades about -0.01 of its potential returns per unit of risk. The Albemarle is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 8,863 in Albemarle on October 30, 2024 and sell it today you would lose (458.00) from holding Albemarle or give up 5.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.33% |
| Values | Daily Returns |
General Motors vs. Albemarle
Performance |
| Timeline |
| General Motors |
| Albemarle |
GM and Albemarle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Albemarle
The main advantage of trading using opposite GM and Albemarle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Albemarle 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 Albemarle will offset losses from the drop in Albemarle's long position.The idea behind General Motors and Albemarle 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.| Albemarle vs. SALESFORCE INC CDR | Albemarle vs. OFFICE DEPOT | Albemarle vs. CANON MARKETING JP | Albemarle vs. Haier Smart Home |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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