Correlation Between GM and Assured Guaranty
Can any of the company-specific risk be diversified away by investing in both GM and Assured Guaranty 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 Assured Guaranty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Assured Guaranty, you can compare the effects of market volatilities on GM and Assured Guaranty 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 Assured Guaranty. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Assured Guaranty.
Diversification Opportunities for GM and Assured Guaranty
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Assured is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty 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 Assured Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Assured Guaranty has no effect on the direction of GM i.e., GM and Assured Guaranty go up and down completely randomly.
Pair Corralation between GM and Assured Guaranty
Allowing for the 90-day total investment horizon GM is expected to generate 1.36 times less return on investment than Assured Guaranty. But when comparing it to its historical volatility, General Motors is 1.38 times less risky than Assured Guaranty. It trades about 0.05 of its potential returns per unit of risk. Assured Guaranty is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 5,299 in Assured Guaranty on October 7, 2024 and sell it today you would earn a total of 3,001 from holding Assured Guaranty or generate 56.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.8% |
| Values | Daily Returns |
General Motors vs. Assured Guaranty
Performance |
| Timeline |
| General Motors |
| Assured Guaranty |
GM and Assured Guaranty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Assured Guaranty
The main advantage of trading using opposite GM and Assured Guaranty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Assured Guaranty 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 Assured Guaranty will offset losses from the drop in Assured Guaranty's long position.The idea behind General Motors and Assured Guaranty 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.| Assured Guaranty vs. Delta Air Lines | Assured Guaranty vs. FAIR ISAAC | Assured Guaranty vs. ADRIATIC METALS LS 013355 | Assured Guaranty vs. MAGNUM MINING EXP |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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