Correlation Between GM and CVD Equipment
Can any of the company-specific risk be diversified away by investing in both GM and CVD Equipment 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 CVD Equipment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CVD Equipment, you can compare the effects of market volatilities on GM and CVD Equipment 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 CVD Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CVD Equipment.
Diversification Opportunities for GM and CVD Equipment
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and CVD is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CVD Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVD Equipment 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 CVD Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVD Equipment has no effect on the direction of GM i.e., GM and CVD Equipment go up and down completely randomly.
Pair Corralation between GM and CVD Equipment
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the CVD Equipment. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.06 times less risky than CVD Equipment. The stock trades about -0.11 of its potential returns per unit of risk. The CVD Equipment is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 354.00 in CVD Equipment on December 27, 2024 and sell it today you would lose (46.00) from holding CVD Equipment or give up 12.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. CVD Equipment
Performance |
| Timeline |
| General Motors |
| CVD Equipment |
GM and CVD Equipment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and CVD Equipment
The main advantage of trading using opposite GM and CVD Equipment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CVD Equipment 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 CVD Equipment will offset losses from the drop in CVD Equipment's long position.The idea behind General Motors and CVD Equipment 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.| CVD Equipment vs. Standex International | ||
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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