Correlation Between GM and Companhia
Can any of the company-specific risk be diversified away by investing in both GM and Companhia 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 Companhia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Companhia de Fiacao, you can compare the effects of market volatilities on GM and Companhia 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 Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Companhia.
Diversification Opportunities for GM and Companhia
Good diversification
The 3 months correlation between GM and Companhia is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Companhia de Fiacao in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Fiacao 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Fiacao has no effect on the direction of GM i.e., GM and Companhia go up and down completely randomly.
Pair Corralation between GM and Companhia
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Companhia. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.74 times less risky than Companhia. The stock trades about -0.16 of its potential returns per unit of risk. The Companhia de Fiacao is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,200 in Companhia de Fiacao on September 14, 2024 and sell it today you would earn a total of 299.00 from holding Companhia de Fiacao or generate 13.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
General Motors vs. Companhia de Fiacao
Performance |
| Timeline |
| General Motors |
| Companhia de Fiacao |
GM and Companhia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Companhia
The main advantage of trading using opposite GM and Companhia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Companhia 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 Companhia will offset losses from the drop in Companhia's long position.The idea behind General Motors and Companhia de Fiacao 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.| Companhia vs. CVS Health | Companhia vs. Lloyds Banking Group | Companhia vs. Mitsubishi UFJ Financial | Companhia vs. Ameriprise Financial |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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