Correlation Between GM and Cashmere Valley
Can any of the company-specific risk be diversified away by investing in both GM and Cashmere Valley 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 Cashmere Valley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Cashmere Valley Bank, you can compare the effects of market volatilities on GM and Cashmere Valley 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 Cashmere Valley. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Cashmere Valley.
Diversification Opportunities for GM and Cashmere Valley
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Cashmere is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Cashmere Valley Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cashmere Valley Bank 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 Cashmere Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cashmere Valley Bank has no effect on the direction of GM i.e., GM and Cashmere Valley go up and down completely randomly.
Pair Corralation between GM and Cashmere Valley
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.5 times more return on investment than Cashmere Valley. However, GM is 1.5 times more volatile than Cashmere Valley Bank. It trades about 0.11 of its potential returns per unit of risk. Cashmere Valley Bank is currently generating about 0.09 per unit of risk. If you would invest 3,324 in General Motors on September 2, 2024 and sell it today you would earn a total of 2,235 from holding General Motors or generate 67.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.16% |
| Values | Daily Returns |
General Motors vs. Cashmere Valley Bank
Performance |
| Timeline |
| General Motors |
| Cashmere Valley Bank |
GM and Cashmere Valley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Cashmere Valley
The main advantage of trading using opposite GM and Cashmere Valley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Cashmere Valley 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 Cashmere Valley will offset losses from the drop in Cashmere Valley's long position.The idea behind General Motors and Cashmere Valley Bank 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.| Cashmere Valley vs. Santa Cruz County | Cashmere Valley vs. Montfort Capital Corp | Cashmere Valley vs. Mullen Group | Cashmere Valley vs. Cartier Resources |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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