Correlation Between GM and American Rare
Can any of the company-specific risk be diversified away by investing in both GM and American Rare 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 American Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and American Rare Earths, you can compare the effects of market volatilities on GM and American Rare 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 American Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and American Rare.
Diversification Opportunities for GM and American Rare
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and American is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and American Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Rare Earths 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 American Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Rare Earths has no effect on the direction of GM i.e., GM and American Rare go up and down completely randomly.
Pair Corralation between GM and American Rare
Allowing for the 90-day total investment horizon GM is expected to generate 2.9 times less return on investment than American Rare. But when comparing it to its historical volatility, General Motors is 3.93 times less risky than American Rare. It trades about 0.06 of its potential returns per unit of risk. American Rare Earths is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 16.00 in American Rare Earths on August 28, 2024 and sell it today you would earn a total of 3.00 from holding American Rare Earths or generate 18.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. American Rare Earths
Performance |
| Timeline |
| General Motors |
| American Rare Earths |
GM and American Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and American Rare
The main advantage of trading using opposite GM and American Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, American Rare 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 American Rare will offset losses from the drop in American Rare's long position.The idea behind General Motors and American Rare Earths 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.| American Rare vs. Aurelia Metals Limited | American Rare vs. Artemis Resources | American Rare vs. Ascendant Resources | American Rare vs. Azimut Exploration |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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