Correlation Between GM and Weed
Can any of the company-specific risk be diversified away by investing in both GM and Weed 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 Weed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Weed Inc, you can compare the effects of market volatilities on GM and Weed 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 Weed. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Weed.
Diversification Opportunities for GM and Weed
Very good diversification
The 3 months correlation between GM and Weed is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Weed Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weed Inc 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 Weed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weed Inc has no effect on the direction of GM i.e., GM and Weed go up and down completely randomly.
Pair Corralation between GM and Weed
Allowing for the 90-day total investment horizon GM is expected to generate 1.5 times less return on investment than Weed. But when comparing it to its historical volatility, General Motors is 4.5 times less risky than Weed. It trades about 0.07 of its potential returns per unit of risk. Weed Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 7.96 in Weed Inc on September 2, 2024 and sell it today you would lose (3.96) from holding Weed Inc or give up 49.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Weed Inc
Performance |
| Timeline |
| General Motors |
| Weed Inc |
GM and Weed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Weed
The main advantage of trading using opposite GM and Weed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Weed 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 Weed will offset losses from the drop in Weed's long position.The idea behind General Motors and Weed Inc 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.| Weed vs. FutureWorld Corp | Weed vs. Journey Medical Corp | Weed vs. OrganiGram Holdings | Weed vs. Cresco Labs |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
Other Complementary Tools
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios |