Correlation Between GM and CAT Strategic
Can any of the company-specific risk be diversified away by investing in both GM and CAT Strategic 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 CAT Strategic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CAT Strategic Metals, you can compare the effects of market volatilities on GM and CAT Strategic 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 CAT Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CAT Strategic.
Diversification Opportunities for GM and CAT Strategic
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and CAT is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CAT Strategic Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAT Strategic Metals 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 CAT Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAT Strategic Metals has no effect on the direction of GM i.e., GM and CAT Strategic go up and down completely randomly.
Pair Corralation between GM and CAT Strategic
Allowing for the 90-day total investment horizon GM is expected to generate 10.53 times less return on investment than CAT Strategic. But when comparing it to its historical volatility, General Motors is 15.37 times less risky than CAT Strategic. It trades about 0.15 of its potential returns per unit of risk. CAT Strategic Metals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1.10 in CAT Strategic Metals on August 25, 2024 and sell it today you would lose (0.70) from holding CAT Strategic Metals or give up 63.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.63% |
| Values | Daily Returns |
General Motors vs. CAT Strategic Metals
Performance |
| Timeline |
| General Motors |
| CAT Strategic Metals |
GM and CAT Strategic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and CAT Strategic
The main advantage of trading using opposite GM and CAT Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CAT Strategic 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 CAT Strategic will offset losses from the drop in CAT Strategic's long position.The idea behind General Motors and CAT Strategic Metals 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.| CAT Strategic vs. Glen Eagle Resources | CAT Strategic vs. Grizzly Discoveries | CAT Strategic vs. Silver Dollar Resources | CAT Strategic vs. Defense Metals Corp |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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