Correlation Between GM and Carnival
Can any of the company-specific risk be diversified away by investing in both GM and Carnival 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 Carnival into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Carnival, you can compare the effects of market volatilities on GM and Carnival 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 Carnival. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Carnival.
Diversification Opportunities for GM and Carnival
Very poor diversification
The 3 months correlation between GM and Carnival is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Carnival in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival 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 Carnival. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival has no effect on the direction of GM i.e., GM and Carnival go up and down completely randomly.
Pair Corralation between GM and Carnival
Allowing for the 90-day total investment horizon GM is expected to generate 1.22 times less return on investment than Carnival. But when comparing it to its historical volatility, General Motors is 1.05 times less risky than Carnival. It trades about 0.26 of its potential returns per unit of risk. Carnival is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 2,192 in Carnival on August 27, 2024 and sell it today you would earn a total of 298.00 from holding Carnival or generate 13.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Carnival
Performance |
| Timeline |
| General Motors |
| Carnival |
GM and Carnival Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Carnival
The main advantage of trading using opposite GM and Carnival positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Carnival 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 Carnival will offset losses from the drop in Carnival's long position.The idea behind General Motors and Carnival 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.| Carnival vs. Royal Caribbean Cruises | Carnival vs. Airbnb Inc | Carnival vs. Expedia Group | Carnival vs. Booking Holdings |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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