Correlation Between GM and Diversified Royalty
Can any of the company-specific risk be diversified away by investing in both GM and Diversified Royalty 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 Diversified Royalty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Diversified Royalty Corp, you can compare the effects of market volatilities on GM and Diversified Royalty 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 Diversified Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Diversified Royalty.
Diversification Opportunities for GM and Diversified Royalty
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Diversified is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Diversified Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Royalty Corp 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 Diversified Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Royalty Corp has no effect on the direction of GM i.e., GM and Diversified Royalty go up and down completely randomly.
Pair Corralation between GM and Diversified Royalty
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.5 times more return on investment than Diversified Royalty. However, GM is 2.5 times more volatile than Diversified Royalty Corp. It trades about 0.08 of its potential returns per unit of risk. Diversified Royalty Corp is currently generating about 0.1 per unit of risk. If you would invest 4,539 in General Motors on September 3, 2024 and sell it today you would earn a total of 965.00 from holding General Motors or generate 21.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Diversified Royalty Corp
Performance |
| Timeline |
| General Motors |
| Diversified Royalty Corp |
GM and Diversified Royalty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Diversified Royalty
The main advantage of trading using opposite GM and Diversified Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Diversified Royalty 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 Diversified Royalty will offset losses from the drop in Diversified Royalty's long position.The idea behind General Motors and Diversified Royalty Corp 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.| Diversified Royalty vs. Griffon | Diversified Royalty vs. Matthews International | Diversified Royalty vs. Valmont Industries | Diversified Royalty vs. Steel Partners Holdings |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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