Correlation Between GM and Connecticut Light
Can any of the company-specific risk be diversified away by investing in both GM and Connecticut Light 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 Connecticut Light into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and The Connecticut Light, you can compare the effects of market volatilities on GM and Connecticut Light 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 Connecticut Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Connecticut Light.
Diversification Opportunities for GM and Connecticut Light
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Connecticut is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light 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 Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of GM i.e., GM and Connecticut Light go up and down completely randomly.
Pair Corralation between GM and Connecticut Light
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.25 times more return on investment than Connecticut Light. However, GM is 2.25 times more volatile than The Connecticut Light. It trades about 0.14 of its potential returns per unit of risk. The Connecticut Light is currently generating about -0.07 per unit of risk. If you would invest 5,180 in General Motors on September 3, 2024 and sell it today you would earn a total of 379.00 from holding General Motors or generate 7.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. The Connecticut Light
Performance |
| Timeline |
| General Motors |
| Connecticut Light |
GM and Connecticut Light Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Connecticut Light
The main advantage of trading using opposite GM and Connecticut Light positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Connecticut Light 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 Connecticut Light will offset losses from the drop in Connecticut Light's long position.The idea behind General Motors and The Connecticut Light 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.| Connecticut Light vs. The Connecticut Light | Connecticut Light vs. The Connecticut Light | Connecticut Light vs. PacifiCorp | Connecticut Light vs. Nextera Energy |
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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