Correlation Between GM and TopBuild Corp
Can any of the company-specific risk be diversified away by investing in both GM and TopBuild Corp 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 TopBuild Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and TopBuild Corp, you can compare the effects of market volatilities on GM and TopBuild Corp 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 TopBuild Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and TopBuild Corp.
Diversification Opportunities for GM and TopBuild Corp
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and TopBuild is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and TopBuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TopBuild 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 TopBuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TopBuild Corp has no effect on the direction of GM i.e., GM and TopBuild Corp go up and down completely randomly.
Pair Corralation between GM and TopBuild Corp
Allowing for the 90-day total investment horizon GM is expected to generate 1.75 times less return on investment than TopBuild Corp. But when comparing it to its historical volatility, General Motors is 2.36 times less risky than TopBuild Corp. It trades about 0.1 of its potential returns per unit of risk. TopBuild Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 427,000 in TopBuild Corp on September 3, 2024 and sell it today you would earn a total of 383,759 from holding TopBuild Corp or generate 89.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.56% |
| Values | Daily Returns |
General Motors vs. TopBuild Corp
Performance |
| Timeline |
| General Motors |
| TopBuild Corp |
GM and TopBuild Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and TopBuild Corp
The main advantage of trading using opposite GM and TopBuild Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, TopBuild Corp 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 TopBuild Corp will offset losses from the drop in TopBuild Corp's long position.The idea behind General Motors and TopBuild 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.| TopBuild Corp vs. Verizon Communications | TopBuild Corp vs. Micron Technology | TopBuild Corp vs. Capital One Financial | TopBuild Corp vs. Grupo Hotelero Santa |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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