Correlation Between GM and CMC Metals
Can any of the company-specific risk be diversified away by investing in both GM and CMC Metals 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 CMC Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CMC Metals, you can compare the effects of market volatilities on GM and CMC Metals 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 CMC Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CMC Metals.
Diversification Opportunities for GM and CMC Metals
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and CMC is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CMC Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC 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 CMC Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Metals has no effect on the direction of GM i.e., GM and CMC Metals go up and down completely randomly.
Pair Corralation between GM and CMC Metals
Allowing for the 90-day total investment horizon GM is expected to generate 3.12 times less return on investment than CMC Metals. But when comparing it to its historical volatility, General Motors is 6.21 times less risky than CMC Metals. It trades about 0.05 of its potential returns per unit of risk. CMC Metals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 24.00 in CMC Metals on August 29, 2024 and sell it today you would lose (22.00) from holding CMC Metals or give up 91.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
General Motors vs. CMC Metals
Performance |
| Timeline |
| General Motors |
| CMC Metals |
GM and CMC Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and CMC Metals
The main advantage of trading using opposite GM and CMC Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CMC Metals 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 CMC Metals will offset losses from the drop in CMC Metals' long position.The idea behind General Motors and CMC 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.| CMC Metals vs. First Majestic Silver | CMC Metals vs. Ivanhoe Energy | CMC Metals vs. Orezone Gold Corp | CMC Metals vs. Faraday Copper 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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