Correlation Between GM and Eafe Choice
Can any of the company-specific risk be diversified away by investing in both GM and Eafe Choice 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 Eafe Choice into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and The Eafe Choice, you can compare the effects of market volatilities on GM and Eafe Choice 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 Eafe Choice. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Eafe Choice.
Diversification Opportunities for GM and Eafe Choice
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Eafe is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Eafe Choice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Choice 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 Eafe Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Choice has no effect on the direction of GM i.e., GM and Eafe Choice go up and down completely randomly.
Pair Corralation between GM and Eafe Choice
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.33 times more return on investment than Eafe Choice. However, GM is 3.33 times more volatile than The Eafe Choice. It trades about 0.2 of its potential returns per unit of risk. The Eafe Choice is currently generating about -0.23 per unit of risk. If you would invest 4,484 in General Motors on August 31, 2024 and sell it today you would earn a total of 1,066 from holding General Motors or generate 23.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. The Eafe Choice
Performance |
| Timeline |
| General Motors |
| Eafe Choice |
GM and Eafe Choice Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Eafe Choice
The main advantage of trading using opposite GM and Eafe Choice positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Eafe Choice 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 Eafe Choice will offset losses from the drop in Eafe Choice's long position.The idea behind General Motors and The Eafe Choice 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.| Eafe Choice vs. Fidelity Series 1000 | Eafe Choice vs. Tax Managed Large Cap | Eafe Choice vs. Aqr Large Cap | Eafe Choice vs. Qs Large Cap |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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