Correlation Between GM and CompoSecure
Can any of the company-specific risk be diversified away by investing in both GM and CompoSecure 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 CompoSecure into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CompoSecure, you can compare the effects of market volatilities on GM and CompoSecure 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 CompoSecure. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CompoSecure.
Diversification Opportunities for GM and CompoSecure
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and CompoSecure is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CompoSecure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompoSecure 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 CompoSecure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompoSecure has no effect on the direction of GM i.e., GM and CompoSecure go up and down completely randomly.
Pair Corralation between GM and CompoSecure
Allowing for the 90-day total investment horizon GM is expected to generate 71.5 times less return on investment than CompoSecure. But when comparing it to its historical volatility, General Motors is 51.21 times less risky than CompoSecure. It trades about 0.07 of its potential returns per unit of risk. CompoSecure is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 106.00 in CompoSecure on August 28, 2024 and sell it today you would earn a total of 379.00 from holding CompoSecure or generate 357.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 85.59% |
| Values | Daily Returns |
General Motors vs. CompoSecure
Performance |
| Timeline |
| General Motors |
| CompoSecure |
GM and CompoSecure Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and CompoSecure
The main advantage of trading using opposite GM and CompoSecure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CompoSecure 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 CompoSecure will offset losses from the drop in CompoSecure's long position.The idea behind General Motors and CompoSecure 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.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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