Correlation Between GM and ETRACS Alerian
Can any of the company-specific risk be diversified away by investing in both GM and ETRACS Alerian 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 ETRACS Alerian into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and ETRACS Alerian Midstream, you can compare the effects of market volatilities on GM and ETRACS Alerian 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 ETRACS Alerian. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and ETRACS Alerian.
Diversification Opportunities for GM and ETRACS Alerian
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and ETRACS is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ETRACS Alerian Midstream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS Alerian Midstream 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 ETRACS Alerian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS Alerian Midstream has no effect on the direction of GM i.e., GM and ETRACS Alerian go up and down completely randomly.
Pair Corralation between GM and ETRACS Alerian
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.27 times more return on investment than ETRACS Alerian. However, GM is 2.27 times more volatile than ETRACS Alerian Midstream. It trades about 0.05 of its potential returns per unit of risk. ETRACS Alerian Midstream is currently generating about 0.12 per unit of risk. If you would invest 3,807 in General Motors on August 26, 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 Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. ETRACS Alerian Midstream
Performance |
| Timeline |
| General Motors |
| ETRACS Alerian Midstream |
GM and ETRACS Alerian Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and ETRACS Alerian
The main advantage of trading using opposite GM and ETRACS Alerian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, ETRACS Alerian 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 ETRACS Alerian will offset losses from the drop in ETRACS Alerian's long position.The idea behind General Motors and ETRACS Alerian Midstream 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.| ETRACS Alerian vs. UBS AG London | ETRACS Alerian vs. ETRACS 2xMonthly Pay | ETRACS Alerian vs. UBS AG London |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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