Correlation Between GM and Defiance Hotel
Can any of the company-specific risk be diversified away by investing in both GM and Defiance Hotel 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 Defiance Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Defiance Hotel Airline, you can compare the effects of market volatilities on GM and Defiance Hotel 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 Defiance Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Defiance Hotel.
Diversification Opportunities for GM and Defiance Hotel
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Defiance is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Defiance Hotel Airline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defiance Hotel Airline 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 Defiance Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defiance Hotel Airline has no effect on the direction of GM i.e., GM and Defiance Hotel go up and down completely randomly.
Pair Corralation between GM and Defiance Hotel
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Defiance Hotel. In addition to that, GM is 3.03 times more volatile than Defiance Hotel Airline. It trades about -0.16 of its total potential returns per unit of risk. Defiance Hotel Airline is currently generating about 0.21 per unit of volatility. If you would invest 2,622 in Defiance Hotel Airline on September 18, 2024 and sell it today you would earn a total of 100.91 from holding Defiance Hotel Airline or generate 3.85% 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. Defiance Hotel Airline
Performance |
| Timeline |
| General Motors |
| Defiance Hotel Airline |
GM and Defiance Hotel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Defiance Hotel
The main advantage of trading using opposite GM and Defiance Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Defiance Hotel 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 Defiance Hotel will offset losses from the drop in Defiance Hotel's long position.The idea behind General Motors and Defiance Hotel Airline 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.| Defiance Hotel vs. Invesco Dynamic Building | Defiance Hotel vs. SCOR PK | Defiance Hotel vs. Morningstar Unconstrained Allocation | Defiance Hotel 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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