Correlation Between GM and Amg River
Can any of the company-specific risk be diversified away by investing in both GM and Amg River 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 Amg River into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Amg River Road, you can compare the effects of market volatilities on GM and Amg River 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 Amg River. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Amg River.
Diversification Opportunities for GM and Amg River
Poor diversification
The 3 months correlation between GM and Amg is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Amg River Road in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amg River Road 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 Amg River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amg River Road has no effect on the direction of GM i.e., GM and Amg River go up and down completely randomly.
Pair Corralation between GM and Amg River
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.86 times more return on investment than Amg River. However, GM is 2.86 times more volatile than Amg River Road. It trades about 0.07 of its potential returns per unit of risk. Amg River Road is currently generating about 0.1 per unit of risk. If you would invest 3,536 in General Motors on August 31, 2024 and sell it today you would earn a total of 2,023 from holding General Motors or generate 57.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
General Motors vs. Amg River Road
Performance |
| Timeline |
| General Motors |
| Amg River Road |
GM and Amg River Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Amg River
The main advantage of trading using opposite GM and Amg River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Amg River 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 Amg River will offset losses from the drop in Amg River's long position.The idea behind General Motors and Amg River Road 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.| Amg River vs. Gamco Global Telecommunications | Amg River vs. The National Tax Free | Amg River vs. California High Yield Municipal | Amg River vs. Ab Impact Municipal |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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