Correlation Between GM and Diagonal Bio
Can any of the company-specific risk be diversified away by investing in both GM and Diagonal Bio 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 Diagonal Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Diagonal Bio AB, you can compare the effects of market volatilities on GM and Diagonal Bio 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 Diagonal Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Diagonal Bio.
Diversification Opportunities for GM and Diagonal Bio
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Diagonal is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Diagonal Bio AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diagonal Bio AB 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 Diagonal Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diagonal Bio AB has no effect on the direction of GM i.e., GM and Diagonal Bio go up and down completely randomly.
Pair Corralation between GM and Diagonal Bio
Allowing for the 90-day total investment horizon GM is expected to generate 4.26 times less return on investment than Diagonal Bio. But when comparing it to its historical volatility, General Motors is 6.91 times less risky than Diagonal Bio. It trades about 0.08 of its potential returns per unit of risk. Diagonal Bio AB is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3.31 in Diagonal Bio AB on September 1, 2024 and sell it today you would lose (0.11) from holding Diagonal Bio AB or give up 3.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.67% |
| Values | Daily Returns |
General Motors vs. Diagonal Bio AB
Performance |
| Timeline |
| General Motors |
| Diagonal Bio AB |
GM and Diagonal Bio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Diagonal Bio
The main advantage of trading using opposite GM and Diagonal Bio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Diagonal Bio 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 Diagonal Bio will offset losses from the drop in Diagonal Bio's long position.The idea behind General Motors and Diagonal Bio AB 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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