Correlation Between GM and Brandes Small
Can any of the company-specific risk be diversified away by investing in both GM and Brandes Small 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 Brandes Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Brandes Small Cap, you can compare the effects of market volatilities on GM and Brandes Small 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 Brandes Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Brandes Small.
Diversification Opportunities for GM and Brandes Small
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Brandes is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Brandes Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandes Small Cap 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 Brandes Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandes Small Cap has no effect on the direction of GM i.e., GM and Brandes Small go up and down completely randomly.
Pair Corralation between GM and Brandes Small
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Brandes Small. In addition to that, GM is 2.54 times more volatile than Brandes Small Cap. It trades about -0.32 of its total potential returns per unit of risk. Brandes Small Cap is currently generating about -0.21 per unit of volatility. If you would invest 1,728 in Brandes Small Cap on November 28, 2024 and sell it today you would lose (69.00) from holding Brandes Small Cap or give up 3.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Brandes Small Cap
Performance |
| Timeline |
| General Motors |
| Brandes Small Cap |
GM and Brandes Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Brandes Small
The main advantage of trading using opposite GM and Brandes Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Brandes Small 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 Brandes Small will offset losses from the drop in Brandes Small's long position.The idea behind General Motors and Brandes Small Cap 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.| Brandes Small vs. Templeton Developing Markets | Brandes Small vs. Ep Emerging Markets | Brandes Small vs. Investec Emerging Markets | Brandes Small vs. Barings Emerging Markets |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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