Correlation Between GM and Commercial National
Can any of the company-specific risk be diversified away by investing in both GM and Commercial National 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 Commercial National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Commercial National Financial, you can compare the effects of market volatilities on GM and Commercial National 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 Commercial National. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Commercial National.
Diversification Opportunities for GM and Commercial National
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Commercial is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Commercial National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial National 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 Commercial National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial National has no effect on the direction of GM i.e., GM and Commercial National go up and down completely randomly.
Pair Corralation between GM and Commercial National
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.0 times more return on investment than Commercial National. However, GM is 2.0 times more volatile than Commercial National Financial. It trades about 0.17 of its potential returns per unit of risk. Commercial National Financial is currently generating about 0.15 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% 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. Commercial National Financial
Performance |
| Timeline |
| General Motors |
| Commercial National |
GM and Commercial National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Commercial National
The main advantage of trading using opposite GM and Commercial National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Commercial National 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 Commercial National will offset losses from the drop in Commercial National's long position.The idea behind General Motors and Commercial National Financial 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.| Commercial National vs. HUMANA INC | Commercial National vs. SCOR PK | Commercial National vs. Aquagold International | Commercial National vs. Thrivent High Yield |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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