Correlation Between GM and A1
Can any of the company-specific risk be diversified away by investing in both GM and A1 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 A1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and A1 Group, you can compare the effects of market volatilities on GM and A1 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 A1. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and A1.
Diversification Opportunities for GM and A1
Pay attention - limited upside
The 3 months correlation between GM and A1 is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and A1 Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1 Group 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 A1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1 Group has no effect on the direction of GM i.e., GM and A1 go up and down completely randomly.
Pair Corralation between GM and A1
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.13 times more return on investment than A1. However, General Motors is 7.52 times less risky than A1. It trades about 0.12 of its potential returns per unit of risk. A1 Group is currently generating about -0.08 per unit of risk. If you would invest 5,180 in General Motors on September 3, 2024 and sell it today you would earn a total of 324.00 from holding General Motors or generate 6.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. A1 Group
Performance |
| Timeline |
| General Motors |
| A1 Group |
GM and A1 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and A1
The main advantage of trading using opposite GM and A1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, A1 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 A1 will offset losses from the drop in A1's long position.The idea behind General Motors and A1 Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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