Correlation Between GM and Direct Capital
Can any of the company-specific risk be diversified away by investing in both GM and Direct Capital 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 Direct Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Direct Capital Investments, you can compare the effects of market volatilities on GM and Direct Capital 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 Direct Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Direct Capital.
Diversification Opportunities for GM and Direct Capital
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Direct is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Direct Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Capital Inves 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 Direct Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Capital Inves has no effect on the direction of GM i.e., GM and Direct Capital go up and down completely randomly.
Pair Corralation between GM and Direct Capital
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.31 times more return on investment than Direct Capital. However, General Motors is 3.21 times less risky than Direct Capital. It trades about 0.08 of its potential returns per unit of risk. Direct Capital Investments is currently generating about -0.06 per unit of risk. If you would invest 4,935 in General Motors on August 29, 2024 and sell it today you would earn a total of 544.00 from holding General Motors or generate 11.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 70.31% |
| Values | Daily Returns |
General Motors vs. Direct Capital Investments
Performance |
| Timeline |
| General Motors |
| Direct Capital Inves |
GM and Direct Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Direct Capital
The main advantage of trading using opposite GM and Direct Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Direct Capital 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 Direct Capital will offset losses from the drop in Direct Capital's long position.The idea behind General Motors and Direct Capital Investments 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.| Direct Capital vs. Nice | Direct Capital vs. The Gold Bond | Direct Capital vs. Bank Leumi Le Israel | Direct Capital vs. ICL Israel Chemicals |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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