Correlation Between GM and Southern California
Can any of the company-specific risk be diversified away by investing in both GM and Southern California 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 Southern California into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Southern California Bancorp, you can compare the effects of market volatilities on GM and Southern California 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 Southern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Southern California.
Diversification Opportunities for GM and Southern California
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Southern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Southern California Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California 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 Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California has no effect on the direction of GM i.e., GM and Southern California go up and down completely randomly.
Pair Corralation between GM and Southern California
Allowing for the 90-day total investment horizon GM is expected to generate 1.73 times less return on investment than Southern California. But when comparing it to its historical volatility, General Motors is 1.22 times less risky than Southern California. It trades about 0.31 of its potential returns per unit of risk. Southern California Bancorp is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 1,427 in Southern California Bancorp on August 28, 2024 and sell it today you would earn a total of 368.00 from holding Southern California Bancorp or generate 25.79% 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. Southern California Bancorp
Performance |
| Timeline |
| General Motors |
| Southern California |
GM and Southern California Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Southern California
The main advantage of trading using opposite GM and Southern California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Southern California 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 Southern California will offset losses from the drop in Southern California's long position.The idea behind General Motors and Southern California Bancorp 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.| Southern California vs. Avidbank Holdings | Southern California vs. American Riviera Bank | Southern California vs. American Business Bk | Southern California vs. Private Bancorp of |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Global Correlations Find global opportunities by holding instruments from different markets |