Correlation Between GM and Darma Henwa
Can any of the company-specific risk be diversified away by investing in both GM and Darma Henwa 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 Darma Henwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Darma Henwa Tbk, you can compare the effects of market volatilities on GM and Darma Henwa 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 Darma Henwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Darma Henwa.
Diversification Opportunities for GM and Darma Henwa
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Darma is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Darma Henwa Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darma Henwa Tbk 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 Darma Henwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darma Henwa Tbk has no effect on the direction of GM i.e., GM and Darma Henwa go up and down completely randomly.
Pair Corralation between GM and Darma Henwa
Allowing for the 90-day total investment horizon GM is expected to generate 1.8 times less return on investment than Darma Henwa. But when comparing it to its historical volatility, General Motors is 1.92 times less risky than Darma Henwa. It trades about 0.12 of its potential returns per unit of risk. Darma Henwa Tbk is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 5,900 in Darma Henwa Tbk on August 28, 2024 and sell it today you would earn a total of 5,800 from holding Darma Henwa Tbk or generate 98.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 92.82% |
| Values | Daily Returns |
General Motors vs. Darma Henwa Tbk
Performance |
| Timeline |
| General Motors |
| Darma Henwa Tbk |
GM and Darma Henwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Darma Henwa
The main advantage of trading using opposite GM and Darma Henwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Darma Henwa 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 Darma Henwa will offset losses from the drop in Darma Henwa's long position.The idea behind General Motors and Darma Henwa Tbk 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.| Darma Henwa vs. Bakrieland Development Tbk | Darma Henwa vs. Energi Mega Persada | Darma Henwa vs. Bakrie Brothers Tbk | Darma Henwa vs. Bakrie Sumatera Plantations |
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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