Correlation Between GM and DCN
Can any of the company-specific risk be diversified away by investing in both GM and DCN 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 DCN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and DCN, you can compare the effects of market volatilities on GM and DCN 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 DCN. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and DCN.
Diversification Opportunities for GM and DCN
Pay attention - limited upside
The 3 months correlation between GM and DCN is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and DCN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCN 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 DCN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCN has no effect on the direction of GM i.e., GM and DCN go up and down completely randomly.
Pair Corralation between GM and DCN
If you would invest 0.00 in DCN on November 28, 2024 and sell it today you would earn a total of 0.00 from holding DCN or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. DCN
Performance |
| Timeline |
| General Motors |
| DCN |
GM and DCN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and DCN
The main advantage of trading using opposite GM and DCN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, DCN 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 DCN will offset losses from the drop in DCN's long position.The idea behind General Motors and DCN 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.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 Transaction History module to view history of all your transactions and understand their impact on performance.
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