Correlation Between GM and Arctic Star
Can any of the company-specific risk be diversified away by investing in both GM and Arctic Star 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 Arctic Star into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Arctic Star Exploration, you can compare the effects of market volatilities on GM and Arctic Star 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 Arctic Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Arctic Star.
Diversification Opportunities for GM and Arctic Star
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Arctic is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Arctic Star Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arctic Star Exploration 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 Arctic Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arctic Star Exploration has no effect on the direction of GM i.e., GM and Arctic Star go up and down completely randomly.
Pair Corralation between GM and Arctic Star
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.46 times more return on investment than Arctic Star. However, General Motors is 2.2 times less risky than Arctic Star. It trades about 0.07 of its potential returns per unit of risk. Arctic Star Exploration is currently generating about -0.03 per unit of risk. If you would invest 5,273 in General Motors on August 29, 2024 and sell it today you would earn a total of 206.00 from holding General Motors or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. Arctic Star Exploration
Performance |
| Timeline |
| General Motors |
| Arctic Star Exploration |
GM and Arctic Star Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Arctic Star
The main advantage of trading using opposite GM and Arctic Star positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Arctic Star 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 Arctic Star will offset losses from the drop in Arctic Star's long position.The idea behind General Motors and Arctic Star Exploration 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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