Correlation Between GM and Lyxor CAC
Can any of the company-specific risk be diversified away by investing in both GM and Lyxor CAC 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 Lyxor CAC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Lyxor CAC 40, you can compare the effects of market volatilities on GM and Lyxor CAC 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 Lyxor CAC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Lyxor CAC.
Diversification Opportunities for GM and Lyxor CAC
Excellent diversification
The 3 months correlation between GM and Lyxor is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lyxor CAC 40 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor CAC 40 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 Lyxor CAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor CAC 40 has no effect on the direction of GM i.e., GM and Lyxor CAC go up and down completely randomly.
Pair Corralation between GM and Lyxor CAC
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.07 times more return on investment than Lyxor CAC. However, GM is 3.07 times more volatile than Lyxor CAC 40. It trades about 0.13 of its potential returns per unit of risk. Lyxor CAC 40 is currently generating about -0.21 per unit of risk. If you would invest 5,154 in General Motors on August 30, 2024 and sell it today you would earn a total of 396.00 from holding General Motors or generate 7.68% 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. Lyxor CAC 40
Performance |
| Timeline |
| General Motors |
| Lyxor CAC 40 |
GM and Lyxor CAC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Lyxor CAC
The main advantage of trading using opposite GM and Lyxor CAC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Lyxor CAC 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 Lyxor CAC will offset losses from the drop in Lyxor CAC's long position.The idea behind General Motors and Lyxor CAC 40 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.| Lyxor CAC vs. Manitou BF SA | Lyxor CAC vs. Ossiam Minimum Variance | Lyxor CAC vs. Ekinops SA | Lyxor CAC vs. Orapi SA |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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