Correlation Between GM and Brilliant Earth
Can any of the company-specific risk be diversified away by investing in both GM and Brilliant Earth 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 Brilliant Earth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Brilliant Earth Group, you can compare the effects of market volatilities on GM and Brilliant Earth 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 Brilliant Earth. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Brilliant Earth.
Diversification Opportunities for GM and Brilliant Earth
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Brilliant is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Brilliant Earth Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brilliant Earth 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 Brilliant Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brilliant Earth Group has no effect on the direction of GM i.e., GM and Brilliant Earth go up and down completely randomly.
Pair Corralation between GM and Brilliant Earth
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.5 times more return on investment than Brilliant Earth. However, General Motors is 2.02 times less risky than Brilliant Earth. It trades about 0.14 of its potential returns per unit of risk. Brilliant Earth Group is currently generating about -0.02 per unit of risk. If you would invest 3,135 in General Motors on August 26, 2024 and sell it today you would earn a total of 2,718 from holding General Motors or generate 86.7% 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. Brilliant Earth Group
Performance |
| Timeline |
| General Motors |
| Brilliant Earth Group |
GM and Brilliant Earth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Brilliant Earth
The main advantage of trading using opposite GM and Brilliant Earth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Brilliant Earth 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 Brilliant Earth will offset losses from the drop in Brilliant Earth's long position.The idea behind General Motors and Brilliant Earth 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.| Brilliant Earth vs. Capri Holdings | Brilliant Earth vs. Movado Group | Brilliant Earth vs. Tapestry | Brilliant Earth vs. TheRealReal |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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